"*»  . 


I 


A 

TREATISE  ON  THE  LAW 

OF 

National  and  State  Banks 


INCLUDING    THE 


CLEARING  HOUSE  AND  TRUST  COMPANIES 


WITH     AN 


APPENDIX 


CONTAINING    THE 


NATIONAL  BANK  ACT  AS  AMENDED 


INSTRUCTIONS  RELATIVE 


ORGANIZATION  OF  NATIONAL  BANKS 


By  H.  W.  MAGEE,   B.  L. 

Member  of  the  Los  Angeles  Bar,  and  formerly  one  of  the  Board  of  Bank 
Commissioners  of  the  State  of  California 


ALBANY 

J.  B.  LYON  COMPANY,  PRINTERS 

1906 


Copyright,    1906 
By   H.  W.  MAGEE 


PREFACE. 


The  aim  of  the  author  in  writing  this  book,  has  been  to  make 
it  a  treatise  of  special  value  and  practical  service  to  the  Banker 
and  Lawyer.  With  this  object  in  view  and  to  accomplish  this 
end,  the  laws  as  found  enacted  in  the  statutes,  and  established 
by  the  courts  are  presented.  From  this  authentic  source,  the 
banker,  lawyer,  and  student  may  be  able  to  obtain  the  informa- 
tion desired  upon  all  questions  arising  in  the  organization,  busi- 
ness and  management  of  a  bank. 

Banking  is  a  business  which,  by  legislation,  is  placed  under 
the  control  and  regulation  of  law ;  and  at  the  present  time  there 
are  but  few  private  banks  in  existence  in  the  United  States. 
The  law  in  some  of  the  States  forbidding  the  privilege  of  bank- 
ing to  private  persons.  Therefore  banks  are  now  very  largely 
incorporated  associations,  deriving  their  authority  from  the  na- 
tional banking  laws  enacted  by  Congress,  and  the  laws  enacted 
by  the  States. 

All  banks  incorporated  under  the  national  banking  laws  de- 
rive their  authority  from  the  government  of  the  United  States, 
and  are,  therefore,  called  national  banks.  The  national  banking 
system  originated  as  a  financial  measure  in  the  early  years  of 
the  Civil  War.  It  was  urged  as  a  measure  of  currency  reform, 
and  also  as  a  means  of  replenishing  the  United  States  treasury. 
Its  prime  object  being  to  stimulate  and  improve  the  sale  of 
government  bonds,  and  to  provide  a  national  currency  which 
would  haye  a  uniform  value. 

The  Supreme  Court  of  the  United  States  in  construing  the 
jmrpose  and  object  of  national  banks  has  judicially  declared  that 
'■'  they  are  institutions  designated  to  be  used  to  aid  the  govern- 
ment in  the  administration  of  an  important  branch  of  the  public 

service." 

[iii] 


20(;3038 


iv  Preface. 

Banks  which  are  incorporated  under  the  State  laws  are  desig- 
nated and  called  State  banks,  deriving  their  power  and  authority 
from  the  laws  enacted  by  the  State. 

All  incorporated  banks  obtain  their  powers  directly  from  the 
statute  laws  authorizing  their  creation.  These  powers  or  rights 
are  denominated  and  called  statutory  or  expressed  powers. 
They  have  also  inherent,  incidental,  and  implied  powers,  such 
as  are  necessary  to  carry  out  and  into  effect  the  full  purposes  of 
the  corporation. 

The  author  has  endeavored,  in  the  treatment  of  the  subject, 
to  define  these  various  powers,  and  laws,  which  control  and  regu- 
late the  business  of  banking.  An  earnest  effort  has  been  exerted 
to  present  the  law  and  demonstrate  what  a  banking  corporation 
can,  or  cannot,  do.  With  this  object  in  view  all  the  leading 
cases  reported,  involving  the  rights  and  powers  of  a  bank, 
have  been  reviewed  and  considered  ;  and  when  deemed  expedient 
the  opinion  of  the  court,  as  rendered  in  the  case,  has  been 
quoted  in  full.  This  plan  has  been  adopted  for  the  reason  that 
an  analysis  of  the  cases  or  opinion  of  the  court  frequently  fails 
to  correctly  exjDress  and  record  the  law  as  rendered  by  the  court. 
In  other  instances  the  law  principle  is  simply  and  plainly  stated, 
and  supported  by  citation  of  cases  rendered  by  the  court.  And 
as  a  result,  the  j)roduction  of  this  work,  which  may  rightfully  be 
called  a  ready  reference  or  ivorMng  hooh  on  hanking. 

It  is  also  designed  and  was  originally  intended  to  be  a  digest 
of  the  law  and  a  work  for  the  busy  lawyer,  to  be  used  in  the 
practice,  determination,  and  settlement  of  questions  arising  and 
growing  out  of  the  business  of  banking  and  in  the  trial  of  bank 
cases. 

The  author  has  given  unlimited  time  and  care  to  the  selection 
and  compilation  of  cases  directly  in  point,  and  the  labor  thus 
performed  is  labor  saved  to  the  busy  practitioner. 

All  subjects  and  questions  of  importance  relating  to,  and  af- 
fecting banks  and  banking,  are  presented,  including  a  chapter 
devoted  to  (each)  The  Clearing  House  and  Trust  Companies. 

A  chapter  has  also  been  added  entitled  Inspection  and  Exami- 
nation of  Banks.  This  chapter  is  a  discussion  in  a  general  way 
of  the  procedure  and  mode  required  to  be  followed  by  the 
examiner  in  the  examination  and  checking  up  a  bank. 

The  appendix  to  the  work  contains  all  the  laws  of  the  ^a- 


Preface.  v 

tional  Banking  Act  in  force  at  the  present  time.  In  addition 
thereto  complete  and  full  instructions  are  given  relative  to  the 
organization  of  national  banks. 

In  conclusion  this  work  is  respectfully  submitted  upon  its 
merits,  with  the  hope  that  it  may  prove  (itself)  to  be  a  correct 
guide  to  lawful  and  honest  banking,  and  a  text-book  invaluable 
to  the  banker,  lawyer,  and  student. 

H.  W.  Magee. 

Pasadena,  Cal.,  January  2,  1906. 


TABLE  OF  CONTENTS. 


[References  are  to  pages  and  sections.] 


CHAPTER  I. 

Banking  a  Constitutional  and  Legislative  Privileoe. 

Section     1.  Right  of  banking  controlled  by  legislation 1 

CHAPTER  II. 

State  Regulation  of  Banking  after  Organization. 

Section     2.  State  has  power  to  regulate  the  business 8 

CHAPTER  III. 
Banking  Without  Authority. 

Section     3.  Unauthorized  banking   12 

4.  A  de  facto  corporation 13 

5.  Ultra  vires  acts 13 

CHAPTER  IV. 
Banks  Classified  and  Defined. 

Section     6.  Commercial   and  savings   bank 18 

7.  General  definition  of  banking   19 

8.  When  a  broker  becomes  a  banker 19 

9.  Broker  and  banker  distinguished   22 

10.  Bank  further  defined   23 

11.  Private  banker  defined   23 

12.  Trust  companies  defined   , 23 

13.  Clearing  house  defined    24 

14.  Commercial  bank  further  defined  24 

15.  Mutual   savings  bank  defined 25 

16.  Capitalized  savings  bank  defined 25 

17.  National  banks  further  defined 26 

18.  Enlarged  and  specific  definition  under  State  authority.  ...  27 
18a.  Commercial  banks  more  clearly  defined 27 

19.  Mutual   and   capitalized   savings   banks   more  clearly  dis- 

tinguished     28 

CHAPTER  V. 
The  Organization  of  Banks  and  Proof  of  Corporate  Ekistence. 

Section  20.  Preliminary  steps  —  Organization  of  national  banks 30 

21.  Who  are  natural  persons   30 

22.  Who  can  form  a  bank 30 

23.  Married  women  as  incorporators 31 

24.  Term   of  existence    33 

25.  Purpose   of   corporation    33 

26.  Location 34 

[vii] 


viii  Table  of  Contents. 

[References  are  to  pages  and  sections.] 

Section   27.  Capital  required 34 

28.  Requirements  of  law  essential 34 

29.  Organization,  when  complete   35 

30.  Organization  of  branch  banks 37 

31.  Proof  of  corporate  existence 49 

32.  When  the  life  of  bank  corporation  commences 51 

CHAPTER  VI. 
By-Laws. 

Section  33.  Power  to  make,  inherent  in  corporations 52 

34.  By-law  defined 52 

35.  Power   delegated   by   statvite 52 

36.  Who  has  power  to  make  by-laws 52 

37.  Where   statute   provides   purpose 53 

38.  By-laws  must  be  reasonable 53 

39.  When  a  by-law  becomes  a  law 53 

40.  By-law  must  be   proved 54 

41.  Actions  upon  by-laws    54 

42.  By-law  void  which  waives  liability  of  stockholder 54 

43.  Lien  created  upon  shares  of  stock 55 

44.  Failure    to    make    by-laws 56 

45.  Reasonable  by-law    56 

46.  Defining  duties  of  officers 57 

47.  Amending  by-laws    57 

48.  Provisions  and  form  of  by-laws 58 

49.  Statute    prescribing    time    in    which    by-laws    are    to    be 

adopted 58 

CHAPTER  VII. 
Stockholders'  Rights  and  Liabilities. 

Section  50.  Who  may  be  a  subscriber 59 

51.  Enfoi-cement  of  subscription    61 

52.  What    constitutes    a    stockholder 64 

53.  Purchase   and   transfer   of   stock 66 

54.  Right  of  stockholder    67 

55.  Notice  may  be  waived 68 

56.  The   right   to   vote 68 

57.  Right  to  vote  by  proxy 69 

58.  Right  of  stockholder  to  inspect  records  of  corporation ....  69 

59.  Liability  of  stockholder  to  creditors  of  corporation 70 

60.  Liability  cannot  be  enlarged  by  a  by-law 70 

61.  When    stockholder    liable    to    corporation,    liable    also    to 

creditors 70 

62.  Liability  beyond  subscription   70 

63.  Fixing  date  of  liability 73 

64.  Extent  of  stockholders'  statutory  liability 73 

65.  Liability  of  pledgee  or  trustee 75 

66.  An  assignment  absolute  in  form  may  be  shown  to  be  only 

intended  as  security  76 

67.  Statute   protecting    pledgee    77 

68.  Individual  liability  of  shareholders  of  national  banks....  77 

69.  Extent  of  liability    78 

70.  Liable  for  interest   78 

71.  Representatives  of  deceased  shareholder  liable 78 

72.  Married  woman  shareholder   78 

73.  Executors,  administrators,  guardians,  or  trustees  not  per- 

sonally liable ^0 


Table  of  Ccnte^^ts. 


IX 


[References  are  to  pages  and  sections.] 

(Section   74.  Individual    liability   of   a    stockholder    in   national    bank, 

how  enforced 81 

75.  Creditor  may  sue  stockholder  of  State  bank  corporation .  .      82 

76.  Enforcement  of  individual  liability  of  shareholders  under 

the  National  Banking  Act 82 

77.  When  right  of  action  accrues  against  stockholder  in  na- 

tional bank     82 


CHAPTER  VIII. 

Bank  Officers  axd  Agexts. 

Section     78.  Directors  —  General    discussion    of    duties    and    responsi- 
bilities   83 

79.  Directors   of   national   banks 88 

80.  Directors  of  State  bank 90 

81.  Directors'   meetings    91 

82.  Place  of  meeting  and  notice 91 

83.  Xumber  necessary  to  constitute  a  quorum 92 

84.  Directors  of  national  banks  must  act  as  a  unit 92 

85.  Board  electing  officers  of  bank 92 

86.  Vacancies  in  the  board   92 

87.  Duties  which  cannot  be  delegated 93 

88.  Cannot  delegate  authority  to  make  discounts 93 

89.  Cannot  delegate  statutory  duties 95 

90.  Powers  and  limitations   95 

91.  Limitation  of  power   90 

92.  Assessment  of  shares  —  National  banks 90 

93.  Directoi»s  cannot  give  away  property  of  bank 06 

94.  Cannot  settle  with  cashier  for  his  deficits 96 

95.  Assuming   debts   of   others 96 

96.  Cannot  take  advantage  of  position  for  profit 97 

97.  Discretionary  power 98 

98.  Safe    rule     98 

99.  Releasing  debt    98 

100.  Releasing  subscriber  to  capital  stock 99 

101.  Securing    preferred    creditor     99 

102.  Removing    employees     99 

103.  Courts  declare  that  directors  are  trustees 100 

104.  Misappropriating  bank  funds    101 

105.  Rights   of   directors    101 

106.  Notice  to  the  board   103 

107.  When  the  law  imputes  knowledge 104 

108.  Notice  to  a   director 104 

109.  Director   must  have  actual  knowledge 109 

110.  When  director  is  chargeable  with  knowledge  as  against 

himself 110 

111.  Directors'    liability     110 

112.  Degree   of   care    Ill 

113.  Acting  in  good  faith    Ill 

114.  Directors  declaring  a  dividend 112 

1 15.  Excuses  of  directors    112 

110.  Compensation  of  directors    116 

CHAPTER  IX. 

The  President. 

Section  117.  General  qualifications 117 

118.  Qualifications  necessary  to  hold  office 120 

119.  The  president's  powers 121 


Table  of  Contents. 


[References  are  to  pages  and  sections.] 

Section   120.  President's  powers  derived  from  statute 127 

121.  Limited  and  prohibited  power  of  president 127 

122.  Representations  and  admissions,  effect  of 129 

123.  President  liable  to  bank  for  acts  which  amount  to  breach 

of  trust 130 

124.  President  borrowing  from  bank 132 

125.  President's  compensation   134 

CHAPTER  X. 
The  Cashier. 

Section  126.  Cashier,  general  duties  and  qualifications 136 

127.  Cashier  executive  officer  of  the  bank 138 

128.  Cashier's    inherent   powers    140 

129.  Cashier  has  inherent  power  to  certify  checks 140 

130.  Cashier  cannot  certify  his  own  check 146 

131.  Power  to  draw  checks 147 

132.  Power  to  receive  offers  for  the  purchase  of  bank  securities.   150 

133.  Cashier  has  inherent  power  to  deal  in  bills  of  exchange.  .  151 

134.  Cashier  has  charge  of  personal  property 152 

135.  Power  to  indorse  negotiable  paper 153 

136.  Indorsement    for    accommodation 154 

137.  Cashier's  powers  and  duty  Mhen  "  run  on  bank." 156 

138.  Cashier  borrowing  money  —  Inherent  power  158 

139.  Inherent  power  to  collect  debts 167 

140.  Liability  of  cashier   168 

141.  Cashier  responsible  for  subordinates,  when 169 

142.  Cashier  —  Penalty  —  Liable,   when    .  .  .  ^ 170 

143.  Notice  to  cashier  of  bank  —  When  notice  to  bank 172 

144.  Cashier's  declaration   and  admissions 175 

145.  Cashier's  acts  away  from  bank 176 

146.  Limitation  of  power   177 

CHAPTER  XI. 

Paying  axd  Receiving  Tellers. 

Section  147.  Functions  of  the  paying  teller 179 

148.  Teller's  duties  .    ...'...' 185 

149.  Teller's  torts 189 

150.  Receiving  teller 190 

151.  Limitation  of  power   199 

152.  Rule  as  between  depositor  and  bank  correcting  errors.  .  .  199 

153.  An  act  prescribing  punishment  for  mutilating,   uttering, 

or  passing  United  States  coins 201 

CHAPTER  XII. 

The  Note  Teller. 

Section  154.  His  duties    202 

CHAPTER    XIII. 

Bank  Powers  Defined. 

Section  155.  Statutory  and  expressed  powers 204 

CHAPTER  XIV. 

Converting  State  into  Nation.\l  Banks. 

Section  156.  Steps  to  be  taken 207 

157.  Incorporated  banks  can  only  be  converted 208 

158.  Corporrte  relation  to  old  bank  after  reorganization 209 

159.  Liabilities  of  national  bank  after  conversion 212 


Table  of  Contents. 


XI 


[References  are  to  pages  and  sections.] 

CHAPTER  XV. 

Amending  Bank   Charters. 

Section  160.  National  bank  charter,  how  amended 215 

161.  Amending  State  bank  charter   215 

CHAPTER  XVI. 
Bank  Removing  its  Place  of  Business. 

Section  162.  National  bank  removing  its  place  of  business 219 

163.  State  banks  removing  place  of  business 219 

164.  Place  of  business 222 

CHAPTER  XVII. 
Increasing  or  Reducing  Capital  Stock. 

Section  165.  Law  governing  national  banks 224 

166.  Increasing  capital   stock  of   State  banks 227 

167.  Reduction  of  capital  stock   229 

168.  Reducing  capital  of  State  banks 231 

CHAPTER   XVIII. 

Changing  Name  of  Bank. 

Section  169.  Adopting  new  name    232 

CHAPTER   XIX. 

Deposits. 

Section  170.  Nature  of  deposits    235 

171.  Nature  of  general  deposits 236 

172.  Special  deposits 240 

173.  Deposits   of   paper    244 

174.  Liabilities  of  banks  for  special  deposits 245 

175.  Negligence  in  delivery  of  special  deposits 247 

176.  Bank  deposits  received 248 

177.  Kinds  of  deposits  received 251 

CHAPTER  XX. 
Deposits  Repaid. 

Section  178.  When  and  how  paid 254 

179.  Bank  may  refuse  payment  of  deposit,  when 257 

180.  Payment  of  trust  funds 259 

CHAPTER  XXI. 

Checks. 
Section  181.  Defined   262 

182.  A  check  must  be  dated 263 

183.  It  must  be  drawn  on  bank 264 

184.  Check   must   be    payable   to    a    person   named   or   to    his 

order  or  to  bearer 265 

185.  A  check  must  be  for  the   payment  of  a   certain   sum  of 

money   265 

186.  A  check  must  be  signed  by  the  drawer 266 

187.  Davs  of  grace    266 

188.  Checks  negotiable,  when    267 

189.  Delay  in  presentment  267 

190.  What  is  a  reasonable  time 267 

191.  Diligence  to  bind   the   indorser 268 


xii  Table  of  Co'Ntejstts. 

[References  are  to  pages  and  sections.] 

Section   192.  Stale  checks    268 

193.  Holder  of  check  rights  against  bank 269 

194.  Certified  checks 274 

195.  Right   of   holder    to    look   to   both   the   acceptor   and    the 

drawer  of  a  certified  cheek 277 

196.  Drawer  of  certified  check,  when  released 277 

197.  A  bill  of  exchange  may  be  accepted  orally 278 

198.  Liability  of  banks  —  Negligence 279 

199.  When   mistake    in    certification    may   be    corrected    by    a 

bank 279 

200.  Who  may  certify  checks    279 

201.  When  bank  estopped  from  denying  a  forged  certification.  280 

202.  Bank  can  correct  mistake,  when 280 

203.  Memorandum  checks 280 

204.  Post-dated  checks    281 

205.  Bank  bound  to  honor  checks,  when 284 

206.  Nature   and   effect   of   check 285 

207.  Check  as  payment  285 

208.  Revocation  of  checks   286 

209.  Presentment  for  payment    290 

210.  Mistake  of  bank  in  payment  of  check 292 

211.  Forged   checks,   bank   paying •296 

212.  Right   of   bank   against   presenter    and   owner    of    forged 

paper 299 

213.  Alteration  after  signing  and  uttering 301 

,  214.  Right  of  possession  to  paid  checks 304 

215.  Present  rule 305 

216.  Equitable  and  safe   rule 305 

CHAPTER  XXII. 

Overdrafts. 

Section  217.  When    unlawful    308 

218.  Usage  or  practice,  no  authority 308 

219.  Overdrawing  may  be  legalized 311 

220.  Officer  allowing  overdraft,  criminal  act,  when 312 

221.  Drawer  liable  to  bank  for  overdrafts 312 

CHAPTER   XXIII. 
Certificates  of  Deposit. 

Section  222.  Defined  to  be  promissory   notes 314 

223.  Statute    of    limitations     318 

224.  Interest 320 

225.  Authority  of  banks  to  issue  certificates 320 

226.  Payment  of  certificate   321 

CHAPTER  XXIV. 
Bank  Loans. 

Section  227.  Nature  of  loans    323 

228.  Liabilities  of  any  person,  etc.,  to  national  banks 324 

229.  Restrictions  against  savings  banks 327 

230.  Power   to   make   loans 328 

CHAPTER   XXV. 
Banks  Borrowing  Money. 

Section  231.  National  bank,  extent  of  power 331 

232.  State  banks   borrowing  money 352 


Table  of  Coxtexts.  xiii 

[References  are  to  pages  and  sections.] 

CHAPTER   XXVI. 

Banks  Dealing  ix  Stocks  and  Bonds. 

Section  23.3.  National  banks,  power  limited 3.55 

234.  Liability  of  national  banks  holding  stock  as  security.  .  .    3.58 

235.  Commercial    and    savings    banks    dealing    in    stocks    and 

bonds 359 

CHAPTER  XXVII. 

Bank  Discounts. 

Section  236.  Power  to  make,  vested  in  directors 360 

CHAPTER  XXVIII. 

Dealing  in  Commercial  Paper. 

Section  237.  Distinction  between  "  discovmt ''  and  "  purchasing  " 363 

238.  State  banks,  power  not  limited 369 

CHAPTER   XXIX. 

Banks  Holding  Pl'blic  Funt)s. 

Section  239.  National  banks  depositaries  —  Public  moneys 371 

CHAPTER  XXX. 

Banks  Dealing  in  Real  Estate. 

Section  240.  Limitations  upon  national  banks 374 

241.  State  banks  dealing  in  real  estate ,379 

CHAPTER   XXXI. 

Officers  Borrowing  Funds  of  Bank. 

Section  242.  Prohibited  from  loaning  to  themselves 383 

243.  Restrictions  and  limitations   383 

CHAPTER  XXXIL 

Employing  Counsel. 

Section  244.  Authority  in  president  or  cashier 387 

CHAPTER  XXXIII. 
Donations  by  Banks. 

Section  245.  Power  A^ested  in  stockholders   389 

CHAPTER   XXXIV. 

Conducting  Safe  Deposit. 

Section  246.  Incidental  power Sgi 

CHAPTER   XXXV. 

Banking  Hours. 

Section  247.  When  binding  upon  the  public 3[)5 

CHAPTER  XXXVI. 

Banks  Lending  Credit. 

Section  248.  When  prohibited  by  law .308 

249.  Where  a  bank  may  make  a  guaranty 399 

250.  Guaranty  of  banks  —  Acts  ultra  vires 400 


XIV 


Table  of  Co'Xtexts. 


[References  are  to  pages  and  sections.] 

CHAPTER  XXXVII. 
X^oTES  AND  Acceptances. 

Section  251.  ^Yhen  note  made  payable  at  bank  —  Duty  of  bank 401 

252.  Set-off  —  Estoppel  / '. 402 

253.  Maker's  right  of  set-olf 405 

254.  Special  deposit,  when  accepted  to  pay  note 405 

255.  Money  deposited  with  bank  to  pay  note  is  not  payment .  .  406 

256.  Application  of  deposit  on  note 406 

CHAPTER  XXXVIII. 
Collections  by  Banks. 

Section  257.  Subject  treated  —  Duty  of  bank 407 

258.  Relationship  existing  between  the  parties 408 

259.  Indorsement 409 

260.  Xature  of  relationship  between  the  parties 410 

261.  When  a  bank  becomes  bailee 410 

262.  Paper  payable  at  a  specific  bank 416 

263.  Law  of  place  governs  relation 417 

264.  Usage  and  custom    417 

265.  General  rule  as  to  title  of  paper 420 

266.  Form  of  indorsement  controls  title  to  collection 422 

267.  Blank  indorsement 424 

268.  Power  to  collect  may  be  revoked 424 

269.  Bank  lien  upon  collections   425 

270.  Authority  of  bank  to  make   collections 426 

271.  Bank  suing  in  its  own  name 4.S1 

272.  When  bank  may  renounce  its  authority  to  collect 433 

273.  Dutv  of  collecting  bank  —  Care  —  Diligence 434 

274.  Duty    to   present  —  Collection 436 

275.  Presentment  of  checks   437 

276.  Protest  —  Bank's  duty 438 

277.  Bank  accepting  payment  for  collection 438 

278.  Duty  of  bank  to  collect  interest,  when 441 

279.  Collecting  bank's   liability  as   indorser 441 

280.  When  bank  liable  for  fraud  or  mistakes 443 

281.  Liability  of  initial  bank  for  default  of  its  agents 445 

282.  Who  are  suitable  agents 445 

283.  Banks  emploving  notaries  —  Conflict   of  autliority  as  to 

liability  .  .'    '. 447 

284.  Officers  of  bank  acting  as  notary 448 

285.  Initial  bank's  liability  for  default  of  its  correspondent  — 

Conflict  of  authorities   450 

286.  Review   of   decisions    466 

287.  When  correspondent  bank  liable  to  initial  bank 468 

288.  Where  paper  total  loss 468 

289.  Right  of  creditors  to  proceeds  of  collection 469 

290.  Insolvency  of  initial  or  corresponding  bank  affecting  pro- 

ceeds of  collection   ' 469 

291.  Collections  completed,  when 470 

292.  Bank's   liability   for   negligence   in    failing   to   make   col- 

lections     471 


CHAPTER  XXXIX. 

Savings  Banks. 

Section  293.  General  discussion  —  Xature 473 

294.  State  regulation  of  business 476 


Table  of  Contents.  xv 

[References  are  to  pages  and  sections.] 

Section  295.  Depositor  in  mutual  savings  bank  constitutes  the  bank.  .  .  477 

296.  Depositor  has  no  liability  in  capitalized  savings  bank.  ..  .  479 

297.  Nature  of  deposit  in  a  capitalized  savings  bank 479 

298.  Trust  deposit    479 

299.  Rules  regulating  and  governing  depositors 480 

300.  Gift  —  Savings  bank  deposit  in  trust 480 

301.  Amount  of  deposit  received  may  be  governed  by  statute.  .  4S0 
I                 302.  When  special  deposit  preferred   480 

303.  Notice  of  withdrawal,  when  not  required 481 

304.  By-laws  of  savings  banks 481 

305.  Pass-books 490 

306.  Savings  banks  borrowing  money   491 

307.  Investments   491 

308.  Insolvency    of    savings    banks  —  Appointment    of    a    re- 

ceiver     492 

309.  Rights  of  depositors    492 

310.  Depositor  denied  set-off   492 

CHAPTER  XL. 

Liens  of  Banks. 

Section  311.  General  and  special  liens   490 

CHAPTER  XLI. 
Statute  of  Limitations. 

Section  312.  Runs  against  checks,  when   503 

313.  Runs  against  certificates  of  deposits,  when 50.*^ 

314.  Statute  runs  against  stockholder's  liability,  when 505 

315.  When  State  statute  does  not  govern 506 

316.  Fraudulent  act  by  officer  of  bank  —  Statute  runs,  when .  .  507 

CHAPTER  XLII. 
Forfeiture  of  Bank's  Franchise. 

Section  317.  Acts  of  banks  which  may  forfeit  charter 508 

318.  Acts   constitviting   liability    508 

319.  Failure  to  comply  with   statutory   provisions  —  Grounds 

for    forfeiture    509 

320.  Nonuser  of  charter   , 509 

321.  Willful    violation    of    law    or    bank's    charter    cause    for 

forfeiture 510 

322.  Taking  usurious  interest  held  to  be  a  violation  of  charter.  511 

323.  Bank  may  be  indicted  for  taking  usurious  interest 512 

324.  Directors  embezzling  funds   of  bank  —  Mismanagement..    512 

325.  Wrongful  act  of  a  single  director 512 

326.  Bank  doing  business  not  authorized   513 

327.  Directors  liable  for  losses  resulting  from  violation  of  law.  513 

CHAPTER  XLIII. 
Insolvency. 

Section  328.  Insolvency  defined 514 

329.  Means  may  exist  in  another  State   521 

330.  Officers  taking  deposit  with  knowledge  of  bank's  insolv- 

ency —  Liable,    when    522 

331.  Officer  must  have  actual  knowledge  of  insolvency 522 

332.  Insolvency  —  National  banks 523 

333.  Deposits  may  be  recovered,  when   523 


xvi  Table  of  Contexts. 

[References  are  to  pages  and  sections.] 

Section  334.  Special   deposits    recoverable    525 

335.  Insolvency  demonstrated    52.5 

336.  Set-off   525 

CHAPTEE  XLIV. 
Dissolution. 

Section  337.  Voluntary    liquidation    528 

338.  Authority  of  officers  in  charge   528 

339.  Liquidation  does  not  dissolve  corporation 328 

340.  Liquidation  dividends 529 

CHAPTER  XLV. 

Extension  of  Corporate  Existence. 

Section  341.  National   banks    530 

CHAPTER  XLVL 

Clearing  House. 

Section  342.  History  of  the  clearing  house   532 

343.  Character   and   object    533 

344.  Organization  —  Not  a   corporation    536 

345.  Rules  of  association    537 

346.  Xonnieniber  bank  not  affected  by  clearing  house  rules.  .  .  .  537 

347.  Settling  daily  charges   538 

348.  Presentment  of  collection  througli  clearing  lioase 539 

349.  Effect  of  clearing  house  customs  between  member  banks.  540 

350.  Settlement  between  bank  members  of  clearing  house 540 

351.  Rules  in  Massachusetts  where  check  was  paid  under  mis- 

take of  fact    540 

352.  Forged   checks   passing  through   clearing  house  —  Bank's 

liability  —  Negligence 541 

353.  Rights     of    drawee     bank    against    payee     in    indorsing 

forged  check  553 

354.  Clearing  house  member  representing  a  bank  not  a  member.  555 

355.  How  clearing  house  may  sue  and  be  sued 556 

356.  General    vitility    of    clearing    house    and    its    incidental 

powers 556 

CHAPTER  XLVII. 

Trust  Companies. 

Section  357.  Distinguished  from  a  bank  563 

358.  Trust  companies  may  have  banking  powers 563 

CHAPTER  XLVIII. 
Inspection  and  Examination  of  Banks. 

Section  359.  Checking  up  a  bank   572 

360.  Reports  required  of  banks    572 

361.  Suggestions  to  examiners   575 


TABLE   OF  CASES. 


[References  are  to  pages.] 

A. 

Ackenhausen  v.  People's  Sav.  Bank.  110  Mich.   175,  68  X.   W.   118, 

64  Am.  St.  338 488,  490 

Adams  v.  Improvement  Commission.       44  X.  J.  L.  638  406 

^tna  Ins.  Co.  v.  Alton  City  Bank.        25  111.  221    453 

^tna     Xat.     Bank    v.     Xew    York 

Fourth   Xat.   Bank    46  X.  Y.  82,  7  Am.  Rep.  314.  .  236 

271,  297 
Agricultural    Bank    v.    Commercial 

Bank 7  Sni.  &  Mar.  592   458 

Ainsworth  v.  Bank  of  California .  .        1 19  Cal.  470    525 

Albers  v.  Commercial  Bank    85  Mo.  173.  55  Am.  Rep.  355.  .  288 

Albert   v.    State    65  Ind.  413    50 

Aldrich  v.  Chemical  Xat.  Bank.  .  .  .        176  U.  S.  618   348 

V.  Skinner    98  Fed.  375   505 

Alexandria  Canal  Co.  v.  Swann 5  How.  (U.  S.)   83 123 

V.  First  Xat.  Bank  of  Xenia .        23  Ohio  St.  97    328 

Allen  V.  Culver    3   Den.   284    405 

V.  Gillette 127  U.   S.  589   564 

V.  Keeves    1   East  435    282 

V.  Merchants'    Bank    22   Wend.  215.  .  .442,   453,  455.  457 

V.  Suvdain   20  Wend.  321 430,  431,  462 

American  Bank  v.  Baker 4  Met.  164 404 

American  Exch.  Xat.  Bank  v.  First 

Xat.   Bank   82   Fed.   961    91 

American   Exch.   Xat.  Bank  v.   The 

Loretta  Gold  &  Silver  Mining  Co.       165  111.  103   525 

American  Express  Co.  v.  Haire.  ...        21  Ind.  4   465 

V.  Parsons    44  111.  312    468 

American  Insurance  Co.  v.  Oaklev. .        9  Paige,  496    123 

American  Rv.-Frog  Co.  v.  Haven  .\  .  101  Mass.  398,  3  Am.  Rep.  377.  68 

Anderson  v".  Alton  Xat.  Bank 59  111.  App.  587 466 

v.  Pacific  Bank    112  Cal.  598,  44  Pac.  1003 248 

Andrew  v.   Blacklv    11  Ohio   (X.  S.)   89   282 

Andrews  v.  Suffolk  Bank   12  Gray  (Mass.) ,  461   444 

Appleby  v.  Bank   62  X.  Y.  12   489 

Armour  Packing  Co.  v.  Davis 118  X.  C.  548   422 

Armstrong  v.  Am.  Exch.  Xat.  Bank.        133  U.   S.   433    151 

V.    Xational    Bank    of    Bover- 

town    .■.  .  .        90  Ky.   431 153 

V.     Second     Xat.     Bank     of 

Springfield 38  Fed.  883   34.  38,  39 

[xvii] 


XVI 11 


Table  of  Cases. 


[References  are  to  pages.] 


Armstrong  v.   Stanage 

V.  Warren    

Arnison  v.  Smith   

Ashley  v.  Dickson    

Aspinwall  v.  Bntler    

Athol  Music  Hall  Co.  v.  Carey. 
Atlanta  Nat.  Bank  v.  Burke .  .  . 


Atlantic     Cotton    Mills    v.     Indian 

Orchard   Mills    

Atlantic    Nat.    Bank    v.    Nathaniel 

Harris 

Atlantic  State  Bank  v.  Savery.... 

Atlas  Bank  v.  Nahant  Bank 

Atlas  Nat.  Bank  v.  National  Exch. 

Bank 

Attorney-General     v.     N.     America 

Life  Ins.  Co 

— —  V.  Utica  Ins.  Co 

Atwater  v.  American  Exch.  Bank.. 
Auburn  Savings  Bank  v.  Hayes .  .  . 

Aull  Sav.  Bank  v.  Lexington 

Auten  V.   United   States  Nat.   Bank 

of  New  York    

Ayrault  v.  Pacific  Bank    


37    Fed.   508    343 

49  Ohio  St.  376   526 

41  Ch.  Div.  348 116 

48  N.  Y.  430   271 

133  U.   S.  595 50,  225 

116  Mass.  471    62,  64 

81  Ga.   507,   7   S.   E.   738.  2  L. 

R.  A.   96    297 

147  Mass.  268,  17  N.  E.  496.  .  .  175 

lis  Mass.  147 211,  507 

82  N.  Y.  291    .•  365 

3  Met.    (Mass.)    581    249 

176   Mass.   300 540 

82  N.  Y.   172    9 

15  Johns.   (N.  Y.)   357 3 

L52  111.  605    514 

61    Fed.   911    .527 

74  Mo.   104    491 


174  U.  S.  125 
47  N.  Y.  570 


345 

.453,  468 


B. 


B.  &  B.  R.  R.  Co.  V.  Buck 

Bailey  v.  Mosher   

Bailie  v.  Augusta  Sav.  Bank 

Baines   v.    Babcock    

Baker  v.   Beach    

V.  Briggs    

Balfour  v.  Fresno  Canal  Co 

Ballin   v.   Ferst    

Ballingalls  v.  Gloster   

Ballston  Spa  Bank  v.  Marine  Bank- 
et al • 

Baltimore    &    Ohio    R.    R.    Co.    v. 

Wortliington 

Bank    Commissioners    v.    Bank    of 

Buffalo   

V.  Rhode  Island  Central  Bank. 

Bank  v.   Buigwvn    

V.  Butler  ".    

V.  Collector 

V.  Case   

V.  Dunn    

— —  V.   Earp    

V.  CriOin    

V.  Haskell    

V.  Insurance   Co 

V.  .Tones    

V.  Lanier 

V.  Leach  


68  Me.  81    91 

63  Fed.  488,  11  C.  C.  A.  304..  115 

95  Ga.  277.  21  S.  E.  717 405 

95  Cal.  581 82,  513 

85  Fed.  836   81 

8    Pick.    (Mass.)    121 404 

123  Cal.  395   106 

55  Ga.  546  69 

3   East,  481    431,  463 

10  Wis.    125 '..  162 

21  Md.  275   444 

6  Paige  Ch.   (N.  Y.)   497... 94,  103 

5  R.  I.   12    512 

110  N.   C.   267    108 

41  Ohio  St.  519   

3  Wall.  495   330 

99  U.  S.  628 72,  75 

0  Pet.  51    129 

4  Rawlc    (Pa.).  384 416 

168  111.  314,  48   N.   E.   154 123 

51  N.  H.   116    175 

104  IT.  s.  54   502 

8  Pet.   12   120 

11  Wall.  369    325 

.52   N.  Y.  350 271 


Table  of  Cases. 


XIX 


[References  are  to  pages.] 


Bank   v.   Mclntire 

V.  Matthews 

V.  McCarthy 

V.  Pirie 

V.  Pacific   S.S.   Co 

V.  Peltz 

V.  Perkins    

V.  Scovell 

V.  Smith 

V.  Wheeler    

Bank  of  Allerton  v.  Hoch    

Bank  of  Augusta  v.   Earle    

Bank  of  Bengal   v.   Radakissen   Mit- 

ter 

Bank  of  Commerce  v.  Hart 

V.  Union  Bank   

Bank  of  La  Grange  v.  Cotter 

Bank    of    Louisville    v.    First    Xat. 

Bank 

Bank  of  Manchester  v.  Allen 

Bank  of  the  Metropolis  v.  Jones.  .  . 
■  V.  New  England  Bank    

Bank  of  Mobile  v.  Brown   

V.  Huggins   

Bank  of  ^lontreal  v.  Ingerson    

Bank  of  X.  A.  v.  Rindge    

Bank  of  New  Haven  v.  Perkins   .... 

Bank  of  Orleans  v.   Smith    

Bank  of  Republic  v.  Millard    

Bank  of  St.  Marys  v.  St.  John 

Bank  of  Shasta  v.  Boyd   

Bank   of    St.   Albans   v.    Farmers   & 

Mechanics'   Bank    

Bank  of  Utica  v.  ]\lcKinster 

V.  Smedes  &  Canfield 

Bank  of  Vergennes   v.   Warren    

Bank  of  Washington  v.  Triplett   .  .  . 

Barnes  v.  Ontario  Bank   

V.  Trenton  Gas  Light  Co 

Barnet  v.  Smith   

Bartlett  v.  Drake  

Bart-emeyer  v.  Iowa   

Bashaw  v.  f  nited  States 

Bassett  v.   Mining  Co 

V.  Fairchild 

V.  Brown 

Batchelor  v.  Planters'  Xat.  Bank .  . 
Bates  V.  First  Xat.  Bank  of  Brock- 
port  

Bath   Sav.   Inst.  v.   Sagadahoc  Xat. 

Bank " 

Baxter  v.  Coughlin    

Beal  V.  City  of  Somerville 

Beardsley  v.  Johnson    

Beeman  v.  Duck 

Beers  v.  The  Phoenix  Glass  Co 


40  Ohio  St.  528  212 

98  U.  S.  621  377 

55  Ark.  473,  18  S.  W.  759 91 

82  Fed.  799,  27  C.  C.  A.  171.  .  .  399 

103  Cal.  .594  506 

176  Pa.  St.  513 402 

29  N.  Y.  554  361 

12  Conn.  303  466 

77  Fed.  129,  23  C.  C.  A.  80 361 

21  Ind.  90  137,  361 

89  Pa.  St.  324 116,  355 

13  Pet.  519  3,  49,  222 

4  Moore  P.  C.  140 404 

37  Xeb.  197  167 

3  X.  Y.  230  296 

101  Ga.  134  502 

8  Baxter  (Tenn.),  101 453 

11  Vt.  302 50 

8  Pet.  12  175 

I  How.  234  420 

6  How.  212  500 

42  Ala.  108  266 

3  Ala.  206  425 

105  Iowa,  349  416 

57  Fed.  279  70 

29  X".  Y.  554  r 151 

3  Hill,  560  453 

10  Wall.  152 236,  270,  404,  424 

25  Ala.  566  110 

99  Cal.  604  50 

10  Vt.  141  546 

II  Wend.  473  428.  460 

3  Cow.  (X.  Y.)  662 220.  428 

7  Hill.  91  138 

1  Pet.  25  430.  454,  462 

19  X.  Y.  152 138.  158,  161,  354 

27  X.  J.  Eq.  33 108 

10  Foster  (X.  H. ) ,  256 277 

100  Mass.  174  294 

IS  Wall.  129  3 

47  Fed.  40  388 

15  Xev.  283  91 

132  Cal.  637  116 

105  Mass.  551  295 

10  Rep.  16  (Ky.  1880) 170 

89  X.  Y.  286  260 


89  Me.  500.  36  Atl.  996 56 

70  Minn.  1 523 

50  Fed.  647  411 

121  X.  Y.  224,  24  X.  E.  380.  .  .  92 
12  L.  J.  Exch.  198.  11  M.  &  W. 

251 297 

14  Barb.  358  138 


XX 


Table  of  Cases. 


[References  are  to  pages.] 


Belknap  v.  Davis 

V.    National    Bank    of    North 

America 

Bellemire  v.  Bank  of  the  United 
States   

Bellows  V.  Hallowell,  etc.,  Bank. . . 

Bellows  Falls  v.  Rutland  County 
Bank 

Benton  v.  German-Am.  Xat.  Bank.  . 

Benbow  v.  Cook   

Bernheimer  v.  Marshall    

Bickford  v.  First  Nat.  Bank  of 
Chicago 

Bickley  v.  Commercial   Bank 

Bidwell  V.  Madison   

Birch  V.  Fisher  

Birmingham  Nat.  Bank  v.  Bradley. 

Bishop  V.  Globe  Co 

Bissel  V.  City  of  Kankakee 

Bissell  V.  First  Nat.  Bank  of 
Franklin 

Blair  v.  Bank  of  Mansfield 

Blair  v.  Worley   

Blaflfer  et  al.  v.  Bank 

Blood  V.  Northrop  &  Chick 

Blue  V.  Capital  Nat.  Bank   

Bodenham  v.  Purehas   

Bohmer  v.   City  Bank 

Borup   V.    Nininger    

Born  V.  First  Nat.  Bank  of  In- 
dianapolis   

Boston  Tailoring  House  v.  Fisher .  . 

Bowling  V.  Arthur    

Bowman  v.  Cecil  Bank   

V.  Needles  Nat.  Bank 

Bowden  v.  Johnson   

Bradford  v.  Fox   

Branch  v.  United  States 

Bradstreet  v.  Everson  

Brewster  v.  Burnett   

Brewer  v.  Knapp    

Brent  v.  Bank  of  Washington 

Briggs  V.  Spaulding   

Bridenbecker  v.  Lowell    

Brinkerhoff  v.  Bostwiek    

Bristol  Knife  Co.  v.  Hartford  First 

Nat.  Bank   

BrittdU  V.   Niccolls    

Brittan  v.  Oakland  Bank  of  Savings. 

Brixen  v.  Deseret  Nat.  Bank 

Brooklyn  Trust  Co.  v.  Toler   

Brown  v.  Eastern  Slate  Co 

V.  Finn 


19  Me.  455  296 

100  Mass.  376,  97  Am.  Dec. 

105 296,  297,  301 

4  Whart.  ( Pa. )  105 448 

2  Mason,  31  234 

40  Vt.  377  316,  319,  505 

26  S.  \V.  975  174 

115  N.  C.  324  68 

2  Minn.  61  546 

42  111.  238  267,  288 

39  S.  C.  281,  17  S.  E.   977.  39 

Am.  St.  721 249,  251 

10  Minn.  1  168 

51  Mich.  .36  319 

103  Ala.  109  299 

135  Mass.  132  498 

64  111.  249  390 

69  Pa.  St.  415 176 

10  Leg.  N.  S.  94 132 

2  111.  177  31 

35  La.  Ann.  251 540 

1  Kan.  28  316 

145  Ind.  518  116 

2  B.  &  Aid.  39 405 

77  Va.  445  498 

5  Minn.  417  442 

123  Ind.  78  277 

59  111.  App.  400 169 

34  Miss.  41  458 

3  Grant  Cas.  33  38 

94  Fed.  925,  87  Fed.  430..  398,  400 

107  U.  S.  251,  2  Sup.  Ct.  246.  .  72 

75.  81 

38  N.  Y.  289  286 

1  N.  B.  C.  363  238,  372 

72  Pa.  St.  124,  13  Am.  Rep. 

665 455,  460 

125  :Mass.  68- 294 

1  Pick.  332  404 

10  Pet.  596  497 

141  U.  S.  132.  11  S.  Ct.  924, 

35  L.  ed.  662 111.  112,  109 

32  Barb.  9  68 

88  N.  Y.  .52  513 

41  Conn.  421,  19  Am.  Rep.  517.  297 

104  U.  S.  757 447,  44S,  455 

124  Cal.  282 102.  385 

5  Utah,  504,  18  Pac.  43 297 

65  Hun,  187  280 

134  Mass.  590  72 

34  Fed.  124  65 


Table  of  Cases. 


XXI 


[References  are  to  pages.] 


Brown  v.  Leckie  et  al 

— —  V.  Menimac  River  Sav.  Bank. 

V.   Republican  Mountain  Silver 

Mines 

V.  Valley  View  Mining  Co ...  . 

Brooke  v.  Tradesman's  Nat.  Bank .  . 

Brooks  V.  Bigelow   

Bruen  v.  Hone  et  al 

Brummagim  v.  Tallant    

Bueklin  v.  Chapin   

Bullard  v.  Bank   

Bull  V.  Bank  of  Kasson   

Bullard  v.  Randall    

Bullock  V.  Boyd  et  al 

Bunnell  v.  Collinsville  Bank   

Bundy  v.  Town  of  Monticello 

V.  Cocke   

Burkhalter  v.  Second  Nat.  Bank... 

Burnell  v.  N.  Y.  C.  R.  R.  Co 

Burmingham  Trust  Co.  v.  Louisiana 

Nat.  Bank    

Burden  v.  Burden    

Burgess  v.  Seligman   

Burns  v.  Beck 

Burton  v.  Burley   

Burnett,  Admr.,  v.  First  Nat.  Bank. 
Burrill  v.  Dollar  Sav.  Bank    

Bu.sh  V.  Robinson   

Butler's  University  v.  Scoonover .  .  . 


43  111.  497   288 

67  N.  H.  549,  47  Am.  Rep.  171.  490 

17  Colo.  421    116 

127  Cal.  630   116 

22  N.  Y.  S.  633,  68  Hun,  129 .  .    267 

142  Mass.   6    424 

2  Barb.  586   272 

29  Cal.  503,  89  Am.  Dec.  61.  .  .    504 
1  Lans.  443   272 

18  Wall.  589   50,  56,  499 

123  U.  S.   105 267,  269 

1  Gray,  605   176 

2  Edw.  Ch.    (N.  Y.)   292 272 

38  Conn.  203   477 

84  Ind.  119   502 

128  U.  S.  185 59,  79,     80 

42  N.  Y.   538 268 

45   N.  Y.    184 392 

99  Ala.  379   174 

159  N.  Y.  287   53 

107  U.  S.  20  70,     76 

83   Ga.   471    116 

9   Biss.    253    34,     38 

38  Mich.  630    238 

92    Pa.    St.    134,   37    Am.    Rep. 

669 490 

95  Ky.  492 72 

114  Ind.  381,  16  N.  E.  642 05 


c. 


Cahil  v.  Kalamazoo  Mut.  Ins.  Co.. 

California  Bank  v.  Kennedy 

Caldwell  v.  Bates 

V.  Evans 

V.  Cassidy 

Cambridge  First  Nat.  Bank  v.  Hall. 

Camden  Nat.  Bank  v.  Green 

Canal  Bank  v.  Albany  Bank 

Carr  v.  National  Security  Bank.  .  . 
Carroll      v.      Exchange      Bank      of 

Wheeling 

Carlinville  Nat.  Bank  v.  Wilson... 

Case  v.   Bank    

Castle  V.  Corn  Exch.  Bank   

Casey,  Receiver,  v.  Galli 

Cati  V.  Patterson  

Central    Trans.    Co.    v.     Pullman's 

Palace  Car  Co 

Chemical  Nat.  Bank  v.  Ivohner   .  .  . 

v.   Armstrong    

Chicago  Life  Ins.  Co.  v.  Auditor.  .  . 

v.  Needles    

Chrystie  v.  Foster  

v.  Sherwood  


2  Doug.  (Mich.)  124 53 

167  U.  S.  362  16,  357,  536 

118  N.  C.  323,  24  S.  E.  481 ..  .  115 

5  Bush  (Ky.),  380 400 

8  Cow.  271  406 

119  Ala.  64  259 

45  N.  J.  Eq.  546  526 

1  Hill,  287  296,  306 

107  Mass.  45  404 

30  W.  Va.  518,  4  S.  E.  440 500 

78  111.  App.  339,  58  N.  E.  250.  .  466 

100  U.  S.  446  390 

148  N.  Y.  122.  42  N.  E.  518.  .  .  405 

94  IT.  S.  673  35.  50,  78 

25  Mich.  191  316 

139  U.  S.  24  14.  16,  357 

58  How.  Pr.  267 188 

13  C.  C.  A.  47,  65  Fed.  573.  .  .  .  165 

101  111.  82  9 

113  U.  S.  574  9 

61  Fed.  551  127 

113  Cal.  526,  45  Pac.  820 173 


xxii                                  Table  of  Cases. 

[References  are  to  pages.] 

Chaflin  et  al.  v.  :\reyer 75  X.  Y.  260   392 

Chaffin  V.  Cunimings    37  INIe.   70    Go 

Chicago  First  Nat.  Bank  v.  North- 
western Nat.   Bank   152  III.  296.  38  N.  E.   739,  43 

Am.  St.  247,  26  L.  R.  A.  289.  297 

Chicago  M.  &  F.  Ins.  Co.  v.  Stanford.       28  111.  168   288 

Charleston  v.  People's  Nat.  Bank.  .        5  S.  C.  103   225 

Charles  River  Nat.  Bank  v.  Davis.        100  Mass.  413    288 

Champion  v.  Gordon    70  Pa.  St.  474    282 

Chattahoochee  Nat.  Bank  v.  Schley.       58  Ga.  309   242 

Chase  v.  Merrimac  Bank 19  Pick.  564,  31  Am.  Dec.  163.      65 

Cheney  v.  Libby   134  U.  S.  38    416 

Chubb  V.  Upton   95  U.  S.  665   225 

Cincinnati   Volksblatt   Co.   v.    Hoff- 

nieister : 62  Ohio  St.  189.  56  N.  E.  1033, 

78  Am.  St.  707   09 

Citizens'  Nat.   Bank  of  Kingman  v. 

Berrv 53   Kan.   696.   37   Pac.    131 122 

123,  387 
Citizens'  Nat.  Bank  v.  Doud  35  Fed.  340   524 

V.  Importers',  etc.,  Bank 119  N.  Y.   195.  23  N.  E.  540..   297 

V.  Brown   45  Ohio  St.  39   316 

Citizens'     Bank    of    Paris,    Ky.,    v. 

Houston ' 98  Kv.   139    438 

Citizens'  Bank  v.  Howell    8  Md'.  530   466 

Citizens'  Sav.  Bank  v.  Walden 52  S.  \Y.  953 172 

City   Nat.    Bank   v.    Chemical   Nat. 

Bank   80  Fed.  859  158,  163 

Citv  Nat.   Bank   of   Fort   Worth   v. 

Stout   61  Fed.  567    302 

City  Nat.  Bank  of  Poughkeepsie  v. 

William  Phelps   97  N.  Y.  44   212 

City  of  Marietta  v.  Slocomb 6  Ohio  St.  471    295 

City  Elec.  St.  Rv.  Co.  v.  First  Nat. 

Exch.  Bank   .'. 62  Ark.  33   125 

Cleveland  v.  Hampden  Sav.  Bank. ,        182  Mass.    110 479 

Cleveland,  Brown  &  Co.  v.  Shoeman.       40  Ohio  St.  176   328 

Clemraer  v.  Drovers'  Nat.  Bank 157  111.  206.  41  N.  E.  728.  .237,  502 

Close  V.  Glenwood  Cemeterv 107  U.  S.  466   50 

Clarke  Nat.  Bank  v.  Bank  of  Albion.        52  Barb.  592    147 

Clark  V.  Eastern  Bldg.,  etc.,  Assn.  .        89  Fed.  779   69 

V.  [Metropolitan  Bank    3  Duer,  241   189 

V.  Warwick,  etc 174  [Mass.  434   68 

Coats  V.  Donnell  et  al 94  N.  Y.  168   S53 

Cobb  V.   Becke    6  Ad.  &  El.  930   455 

Cockburn  v.  Union  Bank 13  La.  Ann.  289   69 

Cochecho  Nat.  Bank  v.  Haskell  et  al.        51   N.  H.   116    177 

Cockrill  V.  Abeles    86  Fed.  505   112 

Coffey  V.  National  Bank  of  the  State 

of  Missouri    46  Mo.   140    214 

Cogswell   V.   Rockingham   Ten   Cent 

Sav.  Bank 59  N.  H.  43 477,  492 

Coite  V.  Society  for  Savings 32   Conn.   173    478 

Collins  V.  State    15  So.  214   236 

Commonwealth    v.     Bank    of    [Mut. 

Redemntion    4  Allen,  1 354 

V.  Bank  of  Pennsylvania 3  Watts  &  Serg.  184 481 

V.  Phoenix  Iron  Co 105   Pa.   St.   111.   51   Am.   Rop. 

184 69 


Table  of  Cases. 


XXlll 


[References  are  to  pages.] 


Commercial  Bank  v.  Red  River  Val- 
ley Nat.  Bank   

Commercial  Bank  v.  Union  Bank.. 

Commercial  &  Farmers'  Xat.  Bank 
V.  First  Xat.  Bank  of  Baltimore. 

Commercial  Bank  of  Lake  Erie  v. 
Norton  et  al 

Commercial  Bank  of  Pennsylvania 
V.  Armstrong    

Commercial  Bank  v.  Hughes 

V.  Cunningham    

Commercial   Xat.   Bank  v.   Hennin- 

ger 

V.   Pirie 

Continental  Xat.   Bank  v.  X'ational 

Bank  of  the  Commonwealth 

Conklin  v.  Second  Xat.  Bank 

Concord  X'at.  Bank  v.  Hawkins.  .  .  . 
Cook  v.  Cockins , 

V.   Oilman 

V.  State  Bank  of  Boston 

Cook  County  X'at.  Bank  v.  U.  S. .  .  . 

Cooke  V.  [Marshall    

Coolidge  V.  Brigham    

V.  Williams 

Corcoran  v.  Batchelder   

Cork  V.  Bacon   

Cordell  v.  First  Xat.  Bank  of  Kan- 
sas City   

Corn    Exchange    Bank    v.     X'assau 

Bank 

Costello  V.  Portsmouth  Brewing  Co. 

Cousins  V.  Partridge   

Cowell  V.  Springs  Co 

Cowing  V.  Altman 

Cox  V.   Elmendorf    

Cragie  v.  Hadley    

Crawford  v.  West  Side  Bank 

Crain   et  al.  v.  National   Bank .... 

Crocker   v.   Whitney    

Crockett  &  Harper  v.  Young  et  al .  . 

Cromwell  v.  Lovett    

Crosby  v.  Wright   

Criimp  V.  U.  S.  Alining  Co 

Cummings  v.  Winn    

V.  Webster    

Cunningliam  v.  Davenport   

Curran   v.   Witter    

Curtis  V.  Leavitt   


79  X\  W.  859,  8  X.  D.  382.  .444,  465 
1  Kernan  (X.  Y.I,  203.453,  455,  465 

30  Md.  11,  96Am.  Dec.  554.296,  541 

1  Hill,  501    138 

148  U.  S.  50    422 

17  Wend.  94    405 

24  Pick.  270    105 

105  Pa.  St.  496 403 

82  Fed.  799  400 


50  X^.  Y.  575.  . 
45  X.  Y.  655 .  . 
174  U.  S.  364.. 
117  Cal.   140.. 
34  N.  H.  556.. 
52  X.  Y.  96 .  .  . 
107  U.  S.  445 . . 
181  Pa.  St.  31.; 
1   Met.   547  ..  . 
4  Mass.   140    . 
147  Mass.  541 . 
45  Wis.  192  .  .  . 


.271, 


133, 


280 
325 
16 
521 
295 
361 
525 
227 
295 
565 
325 
285 


64  Mo.  600  320 

91  X.  Y.  74,  43  Am.  Rep.  655.  .297 

69  X.  H.  405,  43  Atl.  640 50 

79  Cal.  224 504 

100  U.  S.  01 50 

71  X^.  Y.  435 285 

97  Tenn.  518 80 

99  X^.  Y.  131 109,  523 

2  X^.  E.  881,  100  X.  Y.  50.  .258,  263 

114  111.  516 161 

71  X.  Y.  161 327 

1  Sm.  &  M.  (Miss.)  241 154 

1  Hall  (N.  Y.),  56 286 

70  Minn.  251 441 

7  Gratt.  352 129 

89  Mo.  51 522,  523 

43  Me.  192 53 

147  X.  Y.  43 479 

68  Wis.  16,  31  X.  W.  705 .504 

15  X".  Y.  9 161,  354 


D. 


Daly. v.  Butchers'  Bank 

Danvers  First  Xat.  Bank  v.  Salem 
First  Xat.  Bank 

Daniels  v.  Kvle  


56  Mo.  94  453,  466 

151  IMass.  280,  24  X.  E.  44.  21 

Am.  St.  450  296 

1  Kelly,  304  282 


xxiv                                  Table  of  Cases. 

[References  are  to  pages.] 

Davis  V.  First  Xat.  Bank  of  Fresno.        118    Cal.    GOO 417,  447.  4G5 

V.  Handy 37   X.  H.   65 17(5 

V.  Memphis  City  R.  Co 22  Fed.  883 lOiJ 

V.  Old  Colony  Railroad 131   Mass.   2.58 249 

V.   Stevens " 18  Blatoh.  2.50 G.5 

V.  Elmira   Sav.  Bank    IGl  U.  S.  275 

V.  Knipp 92  Hun,  297    520 

V.  Weed   44   Conn.   560    78 

Dawson  v.  Real  Estate  Bank 5   Pike    (Ark.),   2S3 502 

Deadwood  First  Xat.  Bank  v.  Gus- 

tin  Minerva  Con.  Mining  Co 42   Minn.   .327.   44    X.   W.    198. 

18  Am.   St.  510 70 

Dedham  Xat.  Bank  v.  Everett  Xat. 

Bank 177  Mass.  392.  59  X.  E.  62.  83 

Am.   St.   286 29G 

DeFeriet  V.  Bank  of  America 23   La.   Ann.   310    8   Am.    Rep. 

597 296 

DeHaven  v.  Kensington  Xat.  Bank.        81  Pa.  St.  95 243 

Delano  v.  Case   121  111.  247,  12  X.  E.  G7u 115 

v.  Butler 118   U.   S.   634,   7   Sup.   Ct.   39. 

71,  230 

Delafield  v.  Kinney   24  \Yend.  345 127 

Despard  v.   Walbridge    15  X.  Y.  374 7G 

Dickens  v.  Beal    10    Pet.    572 151 

Dill  V.  Wareham    7  Met.  438   249 

Doctor  et  al.  v.  Riedel  et  al 96   Wis.    158 407 

Doe  V.  Xorthwestern  Coal,  etc.,  Co.        78    Fed.    62 169 

Dolan  v.  Provident  Sav.  Inst 127    Mass.    183,    34    Am.    Rep. 

358 486,  490 

Dorchester   Bank   v.    Xew    England 

Bank    1   Cush.   177 453,  457 

Dovle  v.  Mizner    42    INIich.    332 34 

Dew  v.   United   States    S2    Fed.   904    312 

Driscoll  V.  West  Bradly  &  C.  M.  Co.        59  X.  Y.  96 499 

Drovers'    Xat.    Bank   v.    Anglo-Am. 

P.  &  P.  Co 117   111.   100 278,  44G,  46G 

V.  Potvin   74  X.  W.  724 174 

Dunavan  v.  Flinn 118  Mass.   537 279 

Duncan  v.  Jaudon 18   Wall.    165 173 

V.  Marvland  Sav.  Inst 10  Gill  &  J.   (Md.)   299 

DuQuoin  v.  Kelly 17G  111.  218 3 

Dvkers    v.    Leather    ^Manufacturers' 

'Bank 11    Paige.   612 281,  286 

Dyer  v.  Sebrell   135  Cal.  597 526 


E. 

Eagle  Ins.  Co.  v.  Ohio   153  U.  S.  446  9 

Eans'     Administrator    v.    Exchange 

Bank  of  Jefferson  Citv 79  ^ilo.   182 212 

East  River  Xat.   Bank  v.  Gove 57  X.  Y.  597 249,  251 

East  Haddam  Bank  v.  Scovil 12    Conn.   303 453 

Eaves  v.   People's  Sav.  Bank 27  Conn.  228,  71  Am.  Dec.  59, 

480,  481 

Edwards  v.  Kearzev 96  L^.  S.  595 4 

Eidman  v.  Bowman 58  111.  444  96 


Table  of  Cases. 


XXV 


[References 

Ellis     V.     Woonsocket     First     Nat. 

Bank 

Ellsworth  V.   Dorwart    

Ellis   V.   Turner    

V.  Ohio  Life  Ins.,  etc.,  Co 

Ellerbe  v.  National  Exch.  Bank.  .  .  . 
Essex    County    Bank    v.    Bank    of 

^Montreal 

Estabrook  v.  Sweet    

Espy  V.  Bank  of  Cincinnati 

Evansville     Bank     v.     German-Am. 

Bank 

Evans  v.  Gale 

Exchange   Bank   v.   Bank   of   North 

America 

V.  Gardner 

V.  Rice 

Exchange  Nat.  Bank  of  Pittsburg  v. 

Third  Nat.  Bank  of  New  York.. 


are  to  pages.] 


22  R.  I.  565 259 

95    Iowa,    108,    03    N.    W.    588, 

58  Am.   St.  427 0!) 

8  T.  R.  531 428,  460 

4   Ohio   St.    628,    64   Am.    Dec. 

610 296,  301 

109  Mo.  445 249 

7  Biss.  193,  Fed.  Cas.  No.  4532.  438 

116   :Mas.s.    303 295 

18    Wall.   604 175,271,278 

155  U.  S.  556 423 

21  N.  H.  240 295 

132   Mass.    147 537 

73  N.  W.  591 168 

98   Mass.   288 279 

112   U.   S.  276 450.467,  468 


F. 


Fabeus  v.  Mercantile  Bank 

Fairfax  v.  N.  Y.  C.  &  H.  R.  R.  R. 

Co 

Fairfield  Sav.  Bank  v.  Chase 

Fall,  etc..  Bank  v.  Sturtevant 

Famous  Shoe  Co.  v.  Crosswhite.  .  .  . 

Farleigh  v.   Cadman 

Farrar  v.  Walker 

Farmers'  Bank  v.  Butchers'  Bank.  . 
Farmers     &    Mechanics"     Bank     v. 

Butchers    &  Drovers'  Bank 

Farmers   &  ^Merchants'  Nat.  Bank  v. 

Butchers  and  Drovers'  Bank .... 
Farmers   &  ^lerchants"  Nat.  Bank  of 

Los  Angeles  v.  Downey 

Farmers'  Nat.  Bank  v.  Templeton    .  . 

V.  Iglehart  

F.  &  M.  Bank  v.  Baldwin 

V.  Jenks   

Farmers      &     ^Mechanics'     Bank    v. 

Champlain  Trans.  Co 

Farmers  &  Merchants'  Bank  of 
Eant  Birmingham  v.  Third  Nat. 
Bank  of  Pittsburg 

Farmers',  etc..   Bank  v.   Wasson .  .  . 

Farmers'  Bank  v.  ^McKee 

Farmers'  Bank  &  Trust  Co.  v.  New- 
land  

Fawsett  v.  National  Life  Ins.  Co. 
of  U.  S 

Fay  V.  Strawn   

Fergiison  v.  Staples  

Ferrv  v.  Home  Sav.  Bank 


23  Pick.  330 453,  466 

67  N.  Y^  11 392 

72  Me.  226 100 

G6   Mass.  372 100 

51  Mo.  App.  55 288 

159  N.  Y.  169 480 

Fed.  Cas.  No.  4.679 05 

69  Am.  Dec.  678 185 

14  N.  Y.  624 138 

16  N.  Y.  125 280,  308 

53  Cal.  466 101 

40  S.  W.  412 123,  130 

6  Gill  (Md.)  50 4as 

23  Minn.  198 364 

9  Ind.  551,  7  Met.  592 

13  Vt.  131 359 

165  Pa.  St.  .500 555 

48  Iowa,  336,  30  Am.  Rep.  398.  50 
2  Pa.  St.  318 128 

97  Ky.  464 460 

5  111.  App.  272 154,  424 

32  111.  295 4.34,  406 

82  Me.  1.59  441 

114  Mich.  321 502 


xxvi  Table  of  Cases. 

[References  are  to  pages.] 

Field  V.   Holland 6  Cranch,  8   404 

Fifth  Ward  Sav.  Bank  v.  First  Nat. 

Bank 48  X.  J.  L.  513 491 

Finn  v.  Brown   142   U.   S.   56 SO 

Finch  V.  Karste  et  al 50  X.   W.   123 443,  472 

First  Xat.  Bank  of  Lyons  v.  Ocean 

Xat.  Bank    .' GO  X.  Y.  278 177.  178,  242.  245 

First    Xat.    Bank    of    Fort    Worth, 

Tex.,  V.  Payne    42  S.  W.  736 421,  427 

First    Xat.    Bank    of    Rochester    v. 

Pierson 24  :\linn.    140 

First  Xat.  Bank  of  Charlotte  v.  Xat. 

Exch.  Bank  of   Baltimore 92  U.  S.  122 338.  341,  345,  355 

V.  Alexander   84   X.   C.   30 291 

First  Xat.  Bank  of  Pawnee  City  v. 

Sprague 34  Xeb.  318,  51  X.  W.  846 466 

First    Xat.    Bank    of    Greenville    v. 

Sherburne 14  111.  App.  5GG 364 

First  Xat.  Bank  of  Xenia,  Ohio,  v. 

Stewart 1 14  U.  S.  224 150 

V.  107  U.  S.  676 329 

First    Xat.     Bank     of    Concord    v. 

Hawkins 79  Fed.  51.  33  U.  S.  App.  747 .  .      77 

First    Xat.    Bank    of    Sturgess    v. 

Bennett 33    Mich.    520 129 

First  Xat.  Bank  of  Crown  Point  v. 

First  Xat.  Bank  of  Richmond.  ...        76  Ind.  561 153 

First  Xat.  Bank  of  Central  City  \. 

Lucas 21    Xeb.   281 131 

First  Xat.  Bank   of  Washington  v. 

Whitman ' 94  U.  S.  343 240 

First     Xat.     Bank     of     Carlisle    v. 

Graham 79  Pa.  St.  106 178,  243 

First   Xat.   Bank  of  Youngstown  v. 

Hughes 6   Fed.    737 10 

First  Xat.  Bank  of  La  con  v.  :Myers.        83  111.  507 321 

First  Xat.  Bank  of  Clarion  v.  Gregg 

&   Co 79  Pa.  St.  384 501 

First   Xat.   Bank   of   Skowhegan   v. 

Maxfield 83  Me.   576 327 

First    Xat.    Bank   of   Evansville   v. 

Tourth  Xat.  Bank  of  Louisville.  .        56  Fed.  967 432 

First    Xat.    Bank    of    Rochester    v. 

Harris 108  Mass.  514 366 

First  Xat.  Bank  of  Quincy  v.  Bicker       71    111.    439 301 

First   Xat.    Bank   of   Monmouth   v. 

Dunbar 118    HI.    625 108 

First  Xat.  Bank  of  Mason  v.  Led- 

better 34  S.  W.   1042 172 

First  Xat.  Bank  of  Planning  v.  Ger- 
man Bank  of  Carroll  Co 107    Iowa.    543 448 

First  Xat.  Bank  v.  Pease 68  111.  App.  562 284 

V.  Hughes 46  Pac.  272 427 

v.  Shreincr 110  Pa.  St.   188 403 

v.  Leach 52   X.   Y.   350 278 

V.  Pierson 24  :Minn.   140 363,  364,  367 

V.  Kidd 20   Minn.   212 37f) 

V.  Mann ". 27   S.  W.   1015 329 


Table  of  Cases. 


XXVI I 


[References  are  to  pages.] 


Fisher  v.  Beckwith 

Fitzgerald  v.   State  Bank 

Fitzgerald,  etc.,  Cons.  Co.  v.  Fitz- 
gerald  

Flannigan  v.  California  Xat.  Bank 
et  al 

Fleckner  v.  United  States  Bank.  .  . 

Flint  V.  Pierce   

Florence  IMining  Co.  v.  Brown 

Foley  V.   Hill    

Fort  Dearborn  Xat.  Bank  v.  Sey- 
mour  

Poster  V.  White   

V.  Essex  Bank 

Fowler  v.  Scully 

Frankfort  Bank  v.  Johnson 

— —  V.    Steward    

Franklin  Xat.  Bank  v.  Xewcombe. 

Franklin  Bank  v.  Byrani    

Franklin  v.  Vanderpool    

Francis  v.  Evans   

Fresno  Canal  &  Irri.  Co.  v.  Warner. 

Freeman  v.  Cnrran    

Freeman's   Bank   v.    Xational   Tube 

Works 

Freeman  v.  Savannah  Bank,  etc.,  Co. 

French  v.  Banking  Co 

French  v.  Tescheraaker   

Freund  v.  Importers,  etc..  Bank .... 

Fridley  v.  Bowen   

Fulton  Bank  v.  Benedict 

V.  Xew  York  &  Sharon  Canal 

Co 


19  Vt.  31 279 

04   Minn.   469 502 

137  U.  S.  98 IIG 

o6  Fed.  959 177 

8  Wheat.  338.151,330.356,301,  300 
99  Mass.  68,  90  Am.  Dec.  691.      52 

70 

124  U.  S.  385 274 

1  Phillips,  397,  2  H.  L.  Cas:  28.   404 


73  X.  W.  724 

SO  Ala.  407 

17  Mass.  479,  9  Am.  Dec.  168.  . 
22  P.  F.  Smith    ( Penn. ) .  456 .  . 

24  Me.  490 96, 

37  Me.  519 

37  X.  Y.  St.  271 

39  Me.  489    

1  Hall   (X.  Y.),  78 

69   Wis.    115 

72  Cal.  379 

1   Minn.   169 


172 

69 

251 

355 

98 

153 

329 

312 

312 

440 

50 

400 


151   Mass.  413 420 

88  Ga.  252,  14  S.  E.  577 297 

91   Me.  485 240 

24   Cal.   518 35,  72 

76  X'.  Y.  352 278 

87  HI.  151 377 

1   Hall    (X.  Y.),   480 105 

4    Paige,    127 129 


G. 


Gabriel  v.  Bank  of  Suisun 

Gale  v.  Chase  Xat.  Bank 

Gauley  v.  Troy  City  Xat.  Bank .  .  . 

Gardner  v.  Butler   

Gashwiler  v.  Willis   

Gatch  V.  Fitch    

Gehardt  v.   Boatman's  Sav.  Inst.  .  . 

German    Xat.    Bank    of    Denver    v. 

Burns 

V.  Foreman    

V.  Farmers'  Dep.  Xat.  Bank.  . 

German  Sav.  Bank  v.  Citizens'  Xat. 

Bank 

V.  Wulfekuhler  

Germania  Bank  v.  Boutell 

Gibson  v.  Peters  

V.  City  of  Erie  


145  Cal.  266 99 

104  Fed.  214 177 

98  X.  Y.  487 248 

36  X.  J.  Eq.  702 110 

33  Cal.  11 90 

34  Fed.  566  82 

38  Mo.  60 450 

12  Colo.  539 446.  465 

138  Pa.  St.  474 403 

118  Pa.  St.  294 288 

101  Iowa.  530.  70  X.  W.  760,  63 

Am.  St.  399  297 

19  Kan.  60 112 

60  Minn.  189.  62  X.  W.  327.  51 

Am.  St.  519,  27  L.  R.  A.  635.  296 

150  U.  S.  342 388 

196  ?a.  St.  7 422 


xxviii                               Table  of  Cases. 

[References  are  to  pages.] 

Gibbins  v.  Hecox   63  N.  W.  519,  105  Mich.  509.  .  425 

497 

Gill  V.  Cubitt   3  Barn.  &  Cress.  466 551 

Girard     Bank    v.     Bank     of     Pcnn. 

Township 39   Pa.   St.  92 278,  503 

Giselnian  v.  Starr   106  Cal.  651 432 

Givan  v.  Bank  of  Alexandria 52  S.  W.  923 466 

Glazier  v.  Douglas   32   Conn.   393    404 

Gloucester  Bank  v.  Salem  Bank.  .  .         17  Mass.  33 296,  301 

Godfrey  v.  Terrj^   97  U.  S.  171 505 

Godin    V.    Bank    of    the    Common- 
wealth          6   Duer,   76 264 

Goddard  v.  Merchants'  Bank 4  X.  Y.  147 296 

Gold   Alining   Co.   v.    Rockv    Moun- 
tain Xat.  Bank ". 96  U.  S.  640   133,  325,  328 

Goldrick  v.  Bank   123  Mass.  320 483,  486,  487,  489 

Goodvear's     India     Rubber     Co.     v. 

Goodvear  Rubber  Co 128  U.  S.  598 233 

GoodbaV  v.  National  Bank 78  Tex.  461,   14  S.  W.  851 175 

Goodloe  V.  Godley    21    Miss.    233 109 

Goodman  v.  Harvey    4  Adol.  &  Ellis,  870 551 

Goodall  V.  Dollev   ' 1   T.  R.  712 431.  462 

Gorman  v.  Guardian  Sav.  Bank.  .  .        4  Mo.  App.  180 492 

Goshen  Nat.  Bank  v.  Bingham 118  N.  Y.   349 278 

Grand  Rapids  Sav.  Bank  v. Warren.        52  Mich.  557 73 

Granger's  Business  Assn.  v.  Clark:  .        67    Cal.    634 13 

Grant  v.  Cropsev  8   Neb.   205 176 

Gray  et'al  v.  Merriam 148    111.    179 391 

Graves  v.  American  Exch.  Bank 17   N.  Y.  205 297 

Graham  v.  Oviatt  58  Cal.  428 69 

Green  v.  Jackson    15  Me.   136 151 

Greene  v.  Dennis   16  Am.  Dec.  58 36 

Griffin   v.    Kemp    46  Ind.  172 26S 

Grissom  v.  Bank   87   Tenn.    350 402 

Gubbins  v.  Bank  of  Commerce....        79   111.   App.   150 169 

Guelich  v.  National  State  Bank 56  Iowa,  434,  9  N.  W.  328.. 453,  466 

Guernsey    v.    Black    Diamond    Coal 

Co 99  Iowa,  471   123 

H. 

Iladden  v.  Dooley   92    Fed.    274 176 

Hager   v.   National   German   Ameri- 
can Bank   31  S.  E.   141 172 

Hall  v.  Paris   59  N.  H.   71 493 

V.  ;Marston   17   Mass.    575 406 

Kale  V.   Walker    31  Iowa.  344   70 

Hammond  v.  Hastings    134  U.  S.  401 564 

Hamilton  v.  Lumber  Co 95    Mich.    436 268 

Hanna    v.    International    Petroleum 

Co 23  Ohio   St.  622 51,  91 

Hannon   v.    Williams    34  N.  J.  Eq.  255 527 

Handley  v.  Stutz   139  U.  S.  417 68 

Hartford  Bank  v.  Hartford  Ins.  Co.        45   Conn.   22 498 

v.   Hart    3  Day    ( Conn. ) ,  491 105 

HarrisburiT  Bank  v.  T\'ler 3  W.*  &  S.  373 129 

y.    Forster    8   Watts    ( Pa. ) ,    12 178 

Harris  v.  McGregor ." 29  Cal.  125 36 


Table  of  Cases. 


XXIX 


[References  are  to  pages.] 


Hatch  V.  Dexter  First  Nat.  Bank .  . 

V.  Johnson  Loan  &  Trust  Co.  . 

Hatton  V.  Holmes   

Haven   v.    New    Hampshire    Insane 

Asylum 

Hawkins  v.  Fourth   Xat.   Bank.... 

V.  Glenn   

Hayden  v.  Bank  of  Syracuse  et  al .  . 

Hayes  v.  Shoemaker   

Hay^vard  v.   Pilgrim   Society 

Hazlett  V.  Commercial  Xat.  Bank .  . 
Heath  v.  Portsmouth  Sav'.  Bank... 

Heath  et  al  v.  Second  Xat.  Bank 
of  Lafayette    

Hehvege  v.   Hibernia  Xat.   Bank .  .  . 

Hennessy  v.  City  of  St.  Paul 

Henry  v.  Xorthern  Bank  of  Ala- 
bama   

Henniker  v.  Wigg   

Henderson  Trust   Co.  v.   Ragan .... 

Heintzelman  v.  Druids'  Relief  Assn. 

Heironimus  v.  Sweeney 

Higgins  Co.  v.  Higgins  Soap  Co .  .  . 

Higgins  V.  Hayden 

Hindman  v.  First  Xational  Bank  of 

Louisville 

Hill  V.  Pine  River  Bank 

v.  Trust  Co 

Hills  V.  Place   

Hodge  V.  Bank   

Hodgin  V.  Bank   

Holmes  v.  Holmes,  etc..  Co 

Holly  Springs   Bank   v.   Pinson.... 

Holt  et  al.  v.  Bacon  et  al 

Homer  v.  Xational  Bank 

Hoover  v.  Wise   

Hotehkiss  v.  Artisans'   Bank 

Houghton  v.  First  Xat.  Bank  of 
Elkhorn  

Houston  V.  Thornton  et  al 

Houston  Grocerv  Co.  v.  Farmers' 
Bank ' 

Howard  v.  Walker    

V.  Roeben   

Howard  Xat.  Bank  v.  Loomis 

Howe  V.  Hartness   

Hovt  V.  Thompson's  Executor 

Hulitt  V.  Bell    

Hun  V.  Cary  et  al 

Hunt,  Appellant 

Hunt  V.  Ward    

Huse  V.  Hamblin    

Hyde  v.  Larkin 

Hvgeia,  etc.,  Co.  v.  Xew  York,  etc., 

Co 


94  Me.  348 316 

79  Fed.  828 2.59 

97  Cal.  208,  31  Pac.  1131 297 

13  X.  H.  5.32,  38  Am.  Dec.  512,  54 

49  X'.  E.  957 152 

131  U.  S.  319 ..  75 

15  X.  Y.  Supp.  48 213 

39  Fed.  319 80 

21  Pick.  270  106 

132  Pa.  St.  118 466 

46  X.  H.  78,  88  Am.  Dec.  194 .  .  57 

4S1,  490 

70  Ind.  106  377 

28  La.  Ann.  520  279 

55  ilinn.  219 16 

63  Ala.  527 130 

4  Q.  B.  792 405 

21  Kv.  L.  Rep.  601,  52  S.  W. 
848'  297 

38  Minn.  138  52 

55  Am.  St.  333 481 

144  X'.  Y.  462 234 

53  Xeb.  61 .524,  525 

112  Fed.  931 .'.  .  178 

45  N.  H.  300 

108  Pa.  St.  1 186 

48  X.  Y.  520 400,  417 

22  Gratt.  51 129 

124  X.  C.  540 502 

37  Conn.  278 233 

58  Miss.  421,  38  Am.  Rep.  330.  50 

25  Miss.  567 154 

140  Mo.  225.  41  S.  W.  790 497 

91  U.  S.  308 454 

2  Abb.  Dec.  (X.  Y. )  403,  2 

Keyes  (X'.  Y.) ,  564 251 

26  Wis.  663 177 

29  S.  E.  287  113 

71  Mo.  App.  132 297 

92  Tenn.  452,  21  S.  W.  897 419 

33  Cal.  399  253 

51  Vt.  349  327 

11  Ohio  St.  449 316 

19  X.  Y.  207  92 

85  Fed.  98  96 

82  X\  Y.  65  381 

141  Mass.  515   321 

99  Cal.  612.  37  Am.  St.  87 506 

29  Iowa,  501  316 

35  Mo.  App.  365 125,  126 


140  X'.  Y.  94 


234 


XXX 


Table  of  Cases. 


[References  are  to  pages.] 


73  Iowa,  58   411 

26  Mo.  App.   129    251 

140  111.  423    234 


Ide,    Executrix,   v.    Bremer    County 

Bank 

Ihl  V.  St.  Joseph  Bank 

Illinois  Watch  Case  Co.  v.  Pearson. 
Indian  Head  Nat.  Bank  v.  Clark.  . 

In  re  Brown    

International  T.  Co.  v.  International 

Loan  &  Trust  Co 

International     Fair     &     Exposition 

Assn.  of  Detroit  v.  Hiram  Walker. 

Irving  Bank  v.  Wetherald 

Ireland  v.  Globe,  etc.,  Co 

Israel  v.  Bowery  Sav.  Bank 9  Dalv   ( X.  Y. ) ,  507 

Isham  V.  Post 141  X.  Y.  100 


43  X.  E.  912   . 

2  Story,  502    . 

153  Mass.  271 


174 

282 

234 


83  Mich.  386 62 

.36  X.  Y.  335    278,  280 

19  R.  I.   ISO 53 

. .489,  490 
448 


J. 


Jackson  v.  McMinnville  Xat.  Bank 

V.  Meek 

V.  Union   Bank    

V.  Sill   .    

James'  Administrator  v.  Rogers .  . 

Jarvis  v.  Wilson   

.Jemison  et  al.  v.  C.  S.  Bank 

Jenkins  v.   Xeff    

Jennings  v.  Bank  of  California... 


V.   Xational   Village   Bank   of 

Bowdoinham   

Jefferson  County  Sav.  Bank  v.  Com- 
mercial Xat.  Bank   

Jefferson  v.  Hewitt    

Jochumsen  v.  Suffolk  Sav.  Bank .  .  . 
Jones  V.  Hawkins 

V.  .Johnson 

V.  Kilbreth 

V.  Morrison 

V.  Guarantv  Co 

V.  Xicholl  :   

-Jourdaine  v.  Lefevere  et  al 

Juker  v.  Commonwealth   

Jumper  v.  Conunereial  Bank 

Judy  V.  Farmers  &  Traders'  Bank., 


92  Tenn.   154,  20  S.  W.  802,  36 

Am.  St.  SI,  18  L.  R.  A.  663.  .   297 
87    Tenn.    69.   9    S.   W.    225,    10 

Am.  St.  620 70 

6  Harr.  &  J.  146 453 

11  Johns.    (X.  Y.)   201 285 

23   Ind.   451   353 

46  Conn.  90  278 

122  X.  Y.    135 491 

186  U.  S.  230   560 

79    Cal.    323.    21    Pac.    852,    12 
Am.  St.  145,  5  L.  R.  A.  233.     56 

330 

58  Me.  275 329 

39  S.  W.  338    417 

103  Cal.  624   228 

3  Allen,  87   482,  486,  487 

17  Ind.  550   152 

86  Kv.  530    98 

49  Ohio  St.  413   415 

31  Minn.   140    389 

101  U.  S.  628   3S5 

82  Cal.  32   504 

1  Esp.  Rep.  66   502 

20  Pa.  St.  484  52 

26  S.  E.  725,  .39   S.  C.  296,   17 

S.  E.  980,  48  S.  C.  4.30 251 

81   Mo.  404 502 


K. 


Kahn  v.   Walton    

Kearney  v.  Andrews    

Kent  v.  Bornstein   

Kennedy  Southern  Ry.  v.  Gtebhard. 


46  Ohio  St.  195,  20  X.  E.  203.  .  288 

10  X.  J.  Eq.  70 .52 

12  Allen.  342    294 

109  U.  S.  527   222 


Table  O'F  Cases. 


XXXI 


[References  are  to  pages.] 


Kentucky  Flour  Co.  v.  Merchants' 
Nat.  Bank    

Kermever  v.  New  by 

Keyser  v.  Hitz   

Kilgore  v.   Bulkley    '.  . 

Kiiuins  v.  Boston  Five  Cent  Sav. 
Bank 

Kinkier  v.  .Junica    

Kingsley  v.  \Yhitman  Sav.  Bank.  .  . 

Kinnan  v.  Sullivan  County  Club .  .  . 

Kirkham  v.  Bank  of  America 


Klauber  v.  Biggerstaff   .  . 

Kleekamp  v.  Mever   

Knight  V.  Old  Nat.  Bank 


Koontz  v.  Central  Nat.  Bank 
Kummel  v.  G.  S.  Bank 


Kux  v.  Savings  Bank 


9G  Kv.  225 526 

U  Kan.   104    285 

133  U.  S.  138   50,  59.  77,     80 

14   Conn.  302    310 


141  Mass.  33    483. 

84  Tex.  lie,  19  S.  W.  359 

182  Mass.   252    

26  X.  Y.  App.  Div.  213 

105  N.  Y.  132,  58  N.  E.  753.  .  . 
465, 

47   Wis.  551    

5  Mo.  App.  444 

3   Cliff.   429.   14   Fed.   Cas.   No. 

7,885   

51  Mo.  275    

127  N.  Y.  488,  28  N.  E.  398.. 


487 
116 
487 
69 
434 
471 
316 
539 


93  Mich.  511 


56 
306 

57 
490 
490 


Ladies,  etc.,  Assn.,  Limited,  v.  Pul- 
brook  

Laing  v.  Burley   

Lakeside  Ditch  Co.  v.  Crane 

Lake  Erie  &  Western  R.  R.  Co.  v. 

Indianapolis  Nat.  Bank   

Lamb  v.  Camden  &  Ambov  R.  &.  T. 

Co ' 

Lanier  v.  Nash   

Lanterman  v.  Travous   

Latimer  v.  Bard    

Laughlin  v.  ^Marshall    

Lawrence  et   al.   v.   The   Stouin^ton 

Bank \  .  .. 

Lawson  v.   Richards 

Lazear  v.  Union  Bank  of  ^Maryland. 

Lead  Co.  v.  Reinhard   

Leander    J.    McCormick    v.    Market 

Nat.  Bank  of  Chicago 

Leach   V.   Hale    

Leavenworth    First    Nat.    Bank    v. 

Tappan  

Lebanon  v.  Mangan   

Legendre   v.   New   Orleans   Brewing 

Assn 

Lenox  v.  Cook   

Levy  V.  Bank  of  America 

v.  Franklin  Sav.  Bank   

V.  United  States  Bank    

Lewis  V.  Lynn  Inst,  for  Savings.  .  . 


81    L.    T.    300.    2    Q.    B.    376 

(1900)    23 

101  111.  591    80 

80  Cal.  181    13 

65  Fed.  690 524 

46  N.  Y.  271   392 

121  U.  S.  404   4.32 

174   111.   459    .524 

76   Fed.   536    225 

19  III.  390,  18  111.  563 316 

6  Conn.  521   453.  466.  .501 

6  Pa.  Rep.  179   284 

52  Md.  78   363,  364.  366 

114  Mo.  218,  21  S.  W.  488 91 

« 

162    111.    100    

31   Iowa,  69    242,  358 

6  Kan.  456.  7  Am.  Rep.   568 .  .   296 
28  Pa.  St.  452    316 

45  La.  Ann.  669,  12  So.  837.  40 

Am.   St.  243    69 

8  Mass.  460   431.  463 

24  La.  Ann.  220,   13  Am.  Reo. 

124 296 

117  Mass.  448..57.  482.  483.4SG.  487 
4    Dall.    234.    1    L.    ed.    814.    1 

Binn.    (Pa.)    27    290.545 

148  Mass.   235    492 


xxxii                                 Table  of  Cases. 

[References  are  to  pages.] 

V.  Switz 74  Fed.  381   80 

V.  Peek 10  Ala.  142   455 

L'Herbette  v.   Pittstield  Nat.  Bank.  162  Mass.  137,  38  N.  E.  368...  24it 

Library  v.  Association    173  Pa.  St.  30    91 

Life  &  Fire  Ins.  Co.  v.  The  Mechanic 

Fire  Co.  of  New  York 7  Wend.  31   12.1 

Lindsborg  Bank  v.  Ober 31  Kan.  599,  3  Pac.  324 4()(J 

Little  V.  Bank    2  Hill,  425 2(i7 

Livingston  v.  Bank  of  New  York.  ..        26  Barb.  305    515 

Lockwood  V.  Mechanics'  Nat.  Bank.  9  R.  I.  308,  11  Am.  Rep.  253..  56 
Logan  County  Xat.  Bank  v.  Town- 
send  139  U.  S.  67    205,  329,  357 

Loring  v.  Brodie    134  Mass.   453    173 

Louden   Sav.   Fund   Soc.  v.  Hagers- 

town   Sav.  Bank    36  Pa.  St.  498    310 

Louisville     Third     Xat.     Bank     v. 

Vicksburg  Bank   61  Miss.  1 12   466 

Lowrv  V.  Inman   46  X.   Y^    119    60 

Lovd"  V.   Osborne    92   Wis.  93    437 

Lynch  v.  Goldsmith   64   Ga.   42    316 

V.  First  Xat.  Bank  of  Jersey 

Citv .-....'.        107   X.  Y\   179    278 

Lvon"v.  American  Screw  Co 16  R.  I.  472,  17  Atl.  61 69 

-^ —  v.  .Jerome    26   Wend.    (X.   Y.)    484 93 

Lucas  V.  Government  Xat.  Bank  of 

Pottsville 1  X.  B.  C.  872   506 

V.  San  Francisco 7  Cal.  463   54 

V.  Coe    86  Fed.  972 81 

Lunt  V.  Bank  of  Xorth  America ...        49  Barb.  221   288 


M. 

]\Iackersy  v.  Ramsays   9  CI.  &  Fin.  818   454,  455 

Mahaiwe  Bank  v.  Douglas 3   Conn.    170    301 

Mann     v.     Second     Xat.     Bank     of 

Springfield 34  Kan.  746    109 

Manufacturers'       Xat.       Bank       v. 

Thomp.son 129  Mass.  438   537 

Mapes  v.   Scott  et  al 94    111.    379 379 

Martin  v.  Deetz   102  Cal.  55,  41  Am.  St.  151 .  13,  35 

V.  Webb 110  U.  S.  7 104 

V.  Mechanics"  Bank   6  Harr.  &  J.  235 405 

Marysville  Elec.  Light  &  Power  Co. 

v.".Iohnson   " 93  Cal.  538,  109  Cal.   192  .  .  .61,  64 

Marshall  v.  American  Express  Co.  .        73  Am.   Dec.  381 395 

Market  St.  Rv.  Co.  v.  Hellman.  ...  109   Cal.   571,   42   Pac.  225.  .  .  .  69 

:\Iassey  v.  Fisher   62  Fed.  958   524 

jNIatthews     v.     Massachusetts     Xat. 

Bank   .    .• 1  Holmes,  396   168 

Mathews  v.  McClaughrv    83   111.  App.  224    69 

May  V.  Jones    ^ 88  Ga.   308    448 

Mavnard    v.    Firemans'    Fund    Ins. 

Co 34  Cal.  48   03 

Mever     &     Lowenstein     v.     Chatta- 
hoochee Xat.  Bank    .^1   Ga.  325 244 

IMcCarthv  v.   Provident   Institution 

for  Savings    159  :\Iass.  .527   487 


Table  of  Cases. 


XXXlll 


[References  are  to  pages.] 


McCagg  V.  Woodman    

McCallian    v.    Hibernia    Sav.    Loan 

Society 

McCami  v.  First  Xat.  Bank  of  Jef- 

fersonville    

— —  V.  State 

McCormick  v.  Market  Nat.  Bank.  . 

McCullough  V.  Wainright   

V.  Moss    

McCulloch  V.  Maryland    

McCraith  v.  National  Mohawk  Val- 
ley Bank    

McDonough  v.  First  Nat.  Bank  of 
Houston    

McDonald  v.  Randall    

McEwen  v.  Davis   

McFarlin  v.  National  Bank  of 
Kansas  City    

McGliee  v.  Importers  &  Traders' 
Nat.  Bank   

McKinster  v.  Bank  of  Utica 

]\lc'Klervy  v.  Southern  Bank 

McMahon  v.  ^Nlacy  

McNulta  V,  Corn  Belt  Bank   

ilead  V.  Young 

Meads  v.  Merchants'  Bank  of  Al- 
bany   

^Mechanics'  Bank  v.  Bank  of  Co- 
lumbia     

V.  Merchants'  Bank    

V.  Schaumburg 

V.  Seitz 

Merchants'  Nat.  Bank  of  Phila- 
delphia V.  Goodman  et  al 

Merchants'  Nat.  Bank  v.  National 
Eagle  Bank   

V.  Tracy 

V.  National  Bank  of  Common- 

Avealth 

V.  McNulty 

V.  Glendon 

V.  State  Nat.  Bank   

^Merchants'  Bank  v.  Rudolf   

V.  Marine  Bank   

V.  New  York  R.  R.  Co 

Merchants'    Bank    of    Baltimore    v. 

Bank  of  Commerce    

^Mercantile  Bank  v.  New  York .... 
^Merchants'  Nat.  Bank  v.  Hanson.  . 
Merchants      &     Planters'     Bank    v. 

Penland    

Mercer  v.  Dyer   

Merrill  v.  .Jacksonville  Nat.  Bank. 

Mervvin  v.  Butler  

Metropolitan  Nat.  Bank  v.  Loyd. . . 


28  111.   84    405 

70  Cal.   1G3    50 

112  Ind.  .3.54   22D 

4  Neb.   324    251 

105   U.  S.  538,   162  111.    100...      15 

50,  357,  375 

14  Pa.  St.   171    285 

5  Den.   507    125 

4  Wheat.  316    61,  79 

104  N.  Y.  414   378 

34  Tex.  310   58 

139  Cal.  246    107 

39  Ind.  109    259 

68  Fed.  868  225 

93  Ala.  192    400 

9  Wend.   46    428.  459 

14  La.  Ann.  458,   74   Am.   Dec. 
438 296 

51  N.  Y.   155    76.     80 

164    111.    427    99 

4  T.  R.  28,  2  Rev.  Rep.  314.  .  .   297 

25  N.  Y.   143    185,  271 

5  Wheat.   326 148 

45  Mo.  513,  100  Am.  Dec.  388..  56 

38  Mo.  228    109 

150  Pa.  St.  632   403 

109  Pa.  St.  422 446 

101  Mass.  281    295,  540 

29  N.  Y.  Supp.  77 172 

1.39  Mass.  513    295,  540 

36   Iowa,   229    421 

120  Mass.  97 51 

10  Wall.  604.  ..34,  38,  4T),  145.  220 

249,  271,  308,  361 

5  Neb.  527   176 

3  Gill,  96   129 

13  N.  Y.  599   228 

24  Md.   12    468 

121  LT.  S.  138   563 

33  Minn.  40    366 

1  B.  C.  25    173 

15  Mont.  317    526 

173   r.   S.   131    527 

17  Conn.  138   397 

90  N.  Y.  530 424 


XXXIV 


Tabli:  of  Cases. 


[References  are  to  pages.] 


Michigan  Ins.  Bank  v.  Eldred 

]\lid(lleto\vn  Bank  v.  Morris    

Miller  v.  Hackley    

V.  Austen   

Millard  v.  National  Bank  of  liepub- 

lic 

Minor  v.  Bank   

Mining     Co.     v.     Anglo-Californian 

Bank 

Ll'Neely  v.  Woodruff" 

Missouri  Lead,  etc.  v.  Reinhard.  .  . 
Mitchell  V.  Easton   

V.  Rubber   Reclaiming   Co.... 

V.  Home  Sav.  Bank   

]\lix  V.  National  Bank  of  Blooming- 
ton  

Mobile  Branch  ]5ank  v..  Collins.... 

Mokelumne  Hill  ^lin.  Co.  v.  Wood- 
bury   

Mohawk  Bank  v.  Broderick 

Monsseaux  v.  Urquhart   

Montgomery  County  Bank  v.  Al- 
bany City  Bank   

IMontelius   v.   Charles    

]\Iorton,  etc.,  Co.  v.  Wysong 

JMorford  v.  Bank    

^Morgan  v.  State  Bank   

Morville  v.  American  Tract  Soc... 

Morris  v.  St.  Paul.  etc..  Ry.  Co.  .  .  . 

Morrill  v.  Little  Falls  Mfg.  Co 

]\Iorse  V.  ^Massachusetts  Nat.  Bank. 

Alovius  V.  Lee   

jNIt.  Sterling  Nat.  Bank  v.  Green.. 

IMuench  v.  Bank  

]\Iunger  v.  Albany  City  Bank 

Mutual  Sav.  Institution  v.  Enslin.. 

Myer  v.  Bishop  


143  U.  S.  293  210 

28  Barb.  010  268 

r>   Johns.  375  208 

13  How.  218  31G 

3  McA.  54  297 

1  Pet.  46 129,  308,  390 

104  U.  S.  192 166 

13  N.  J.  L.  352 68 

114  Mo.  218  222 

37  Minn.  335  319,  503 

24  Atl.  407  6!> 

38  Hun,  255  490 

91  111.  20  51 

7  Ala.  95  116 

73  Am.  Dec.  658 35,  37 

10  Wend.  304  264,  268,  28D 

19  La.  Ann.  482 68 


3  Seld.  4,J9  453, 

76  111.  303  

51  Ind.  14  

26  Barb.  568  

11  N.  Y.  404  

123  Mass.  129  

19  Minn.  459  

53  Minn.  371.  55  N.  W.  547.67, 

I  Holmes.  209  

30  Fed.  298  

35  S.  W.  911  

II  Mo.  App.  144 425, 

85  N.  Y.  580  316,  319, 

46  Mo.  200 

129  Cal.  204  


455 
437 

52 
.398 
297 
249 
234 

68 
146 
169 
239. 
496 
505 
29.-) 

13 


'N. 


Xance  v.  Llemphill    

Naser  v.  First  Nat.  Bank   

National  Bank  of  Commerce  v.  At* 

kinson   

V.  National  Bank  of  Missouri. 

National  Bank  of  Virginia  v.  Nolt- 

ing 

National  Butchers  &  Drovers'  Bank 

V.   Hubbell    

National  Bank  of  Xenia  v.  Stewart. 
National  Bank  of  North  America  v. 

Bangs  

National    Park    Bank    v.    Seaboard 

Bank 

— —  v.  New  York  Ninth  Nat.  Bank. 
National  Mahaime  Bank  v.  Peck.  .  . 


1   Ala.  551    2,       3 

110  N.  Y.  492   465 

55  Fed.  465 124,  125,  126,  398 

Fed.   Cas.   No.    18,310 331 

26  S.  E.  826   301 

117  N.  Y.  384   422 

107  U.  S.  676    275,  276 

106    Mass.    441,    8    Am.    Rep. 
349 296,  301,  553 

114  N.  Y.  28,  20  N.  E.  632 443 

46  N.  Y.  77.  7  Am.  Rep.  310..  296 
127  Mass.  298  404 


Table  of  Cases.  xxxv 

[References  are  to  pages.] 

National    Exch.    Bank   v.    Bank    of 

North  America   132  Mass.  147   539 

National     Bank     of     Newburgh     v. 

Smith   GG  N.  Y.  271   240 

National  Bank  of  Bedford  v.  Stever.        169  Pa.  St.  574 174 

National   Revere  Bank  v.   National 

Bank  of  Republic  172  N.  Y.   102    465 

National  Pahquioque  Bank  v.  First 

Nat.  Bank  of  Bethel 36   Conn.   325    468 

National    Security    Bank    v.    Cush- 

man 121  Mass.  490   109 

National  Bank  v.  Graham   100  U.  S.  699 242,  416 

V.  Insurarce   Co 104  U.  S.  .54 502,  528 

-  V.  Johnson 104  U.  S.  271 365,  366 

V.  Matthews 98  U.  S.  621 275,  276,  326,  367 

379,  385 

V.  Norton 1   Hill,   572    105 

V.  Phelps 97  N.  Y.  44   214 

V.  Whitney 103  U.  S.  99 275,  270,  367 

V.  Watson'town  Bank    105  U.  S.  217   497 

V.  Case   99  U.  S.  628 .  .  75,  328,  344,  357,  358 

V.  City   Bank    103  U.  S.  668   431 

Neal  V.  Coburn   92    Me.    139.    42    Atl.    348,    69 

Am.   St.  495    296 

Neely  v.  Rood   54  Mich.  134  236 

Neflf"v.  Green  County  Nat.  Bank.  .        89   Mo.   581    259 

Newburgh  Bank  v.  Smith    G6  N.  Y.  271   405 

Newby  v.  Oregon  Central  Ry.  Co.  .  .        18  Fed.  Cas.  38 233 

New  Orleans  Nat.  Banking  Assn.  v. 

Wiltz   10  Fed.  330   217 

New  Hope,  etc.,  Co.  v.  Phenix  Bank.       3  X.  Y.  156  109 

Niblack  v.  Cosier   74   Fed.    1000 174 

Nichols  V.   State    ( Neb. ) 65  N.  W.  774 238 

Nicollet  Nat.  Bank  v.  City  Bank .  .        38  Minn.   85    50 

Norton  v.  Bank   61   N.  H.  589    399 

North  River  Bank  v.  Aymar 3  Hill.  262    138 

Northampton  Nat.   Bank  v.   Smith.        169   Mass.  281    294 

Northern  Nat.  Bank  v.  Lewis ,       78  Wis.  475,  47  N.  W.  834 125 

Northwestern  College  v.  Schwagler.       37  Iowa,  577   234 

Northwestern     Nat.     Bank     v.     J. 

Thompson  &  Sons  Mfg.  Co 71  Fed.  113   330 

Northwestern   Coal  Co.  v.   Bowman 

&  Co 69   Iowa,    150    268 

North      Milwaukee,      etc.,      Co.     v. 

Bishop 103  Wis.  492   52 


o. 

Oakland  Bank  of  Savings  v.  Wilcox.       60  Cal.   126,  93  Cal.   17 97,  130 

Oakland  Gas  Light  Co.  v.  Dameron.       67  Cal.  663    50 

Oakdale  Mfg.  Co.  v.  Garst 18  R.  I.  484 223 

O'Brien  et  al.  v.  Grant 146  N.  Y.   163. .  .  .24,  537,  540,  555 

Olney  v.  Chadsey  7  R.  I.  224   128 

Omaha  First  Nat.   Bank  v.  Molinc 

Nat.  Bank   55  Neb.  303   466 

Omaha  Nat.  Bank  v.  Kiper 82  N.  W.   102   468 


xxxvi  Table  of  Cases. 

[References  are  to  pages.] 

Onondaga     County     Sav.     Bank    v. 

U.  S .' 12  C.  C.  A.  407.  64  Fed.  703 ..  .  443 

Oregon    Ry.    &    Navigation    Co.    v. 

Oregonian  Ry.  Co 130  U.  S.  1   357 

Osborn  v.  Byrne   43  Conn.  15.5   477 

Otisfield  V.  Mayberry   63  Me.  197   295 

Oyerman  y.  Ho'boken  City  Bank.  ...       2   Vr.   563    537 

Owen  y.   Bowen    '. 4  C.  &  P.  93   244 


Pacific  Nat.  Bank  v.  Eaton 141  U.  S.  227    64,  226 

Pacific  Bank  y.  Stone   121  Cal.  202    122 

Pacific  Trust  Co.  y.  Dorsey 72  Cal.  55    

Paint  Co.  v.  National  Bank   4  Utah,  353   433 

Panhandle  Nat.  Bank  y.  Emery 78  Tex.  498,  15  S.  W.  23 129 

Pape  y.  Capitol  Bank   20  Kan.  440,  27  Am.  Rep.  183.   491 

Park  V.  McDaniels    37  Vt.  594   295 

Parker  y.  Carolina  Say.  Bank 53  S.  C.  583    99 

Pardee  y.  Fish    60  N.  Y.  265   319 

Parsons  v.  Dickinson   23   Mich.   56    268 

Pattison  y.  Syracuse  Nat.  Bank.  .  .        80  N.  Y.  82 242,  246 

Patterson  y.  Wade 115  Fed.  770   112 

y.  Poindexter    40  Am.  Dec.  554   1,  316 

Pauly  y.  State  Loan  &  Trust  Co. .  .  165  U.  S.  606,  17  Sup.  Ct.  465.      72 

75 

Pease  y.  Hirst   10   B.  &   C.    122,   S.   C.  5  Man. 

&   Ryl.    88 405 

People  y.  Bendit    Ill  Cal.  274   299 

y.  Cole 130  Cal.  13    299 

-  y.  Crockett    9  Cal.   113   56 

y.  Crossley 09  111.   195   52 

y.  Deyin   '    17  111.  84   68 

y.  Doty SO  N.  Y.  225   23 

y.  Fidelity,  etc.,  Co 153  111.  25   223 

y.  :\[ontecito  Water  Co 97  Cal.  276   513 

y.  Nassau  Ferry  Co 86  Hun.  128.  33  N.  Y.  S.  244, 

66  N.  Y.  St.  801 69 

y.  National  Say.  Bank   129  111.  618,  11  N.  E.  170 512 

y.  Oakland  County  Bank 1   Dous.    (Mich.)    282.. 48,  221.  510 

y.  Peck  .    ." 11    Wend.    604    68 

y.  Robinson   64  Cal.  373,  1  Pac.  156 68 

y.  Sterlino:  ^Ifg.   Co 82  111.  457   53 

y.  St.  Nicholas'  Bank   77  Hun.    159    538 

y.  Throop 12  Wend.   183    103 

y.  Utica   Ins.   Co 15  .Johns.  357    1,  513 

y.  Bank  of  Hudson   6  Cow.  216    510 

People's  Bank  y.  National  Bank. . .        101  U.  S.  181    399 

y.  Legra.id   103  Pa.  St.  309 403 

People's  Sav.  Bank  y.  Cupps 91  Pa.  St.  315   481 

Pemberton  v.  Oakes    4  Russ.  154   405 

Pennington  v.  Baehr   48  Cal.  565    266 

Pennsylvania  R.  R.  Co.  v.  St.  Louis, 

Alton,  etc..  R.   R.  Co 118  U.  S.  290 3£7 

Pennsylvania  Bank  v.  Farmers'  De- 
posit Nat.  Bank   130  Pa.  St.  209 499 

Pendergast  v.  Stockton  Bank 19     Fed.     Cas.     No,     10.918,    2 

Sa\yy,   108    56 


Table  ot  Cases. 


XXX  VI 1 


[References   are  to  pages.] 


Perkins  v.  Smith  et  al 

Percy  v.  ^Millandon    

Peterson  v.  Union  Nat.  liank . 
Philler  et  al.  v.  Jewett  &  Co.  . 
V.  Patterson 


Phoenix  Bank  v.  Hussey 
Pickle  V.  Muse   


Pickard  v.   Sears    

Piedmont  Bank  v.  Wilson   

Pierce  v.  Boston  Five  Cent  Sav. 
Bank 

Pittsburgh  Bank  v.  \Yhitehead, 
Sproul  &  Co 

Pittsburgh,  Cincinnati,  etc.,  Ry. 
Co.  V.  Keokuk  &  Hamilton  Bridge 
Co 

Pittsburgh  Locomotive  &  Car 
Works  V.  State  Xat.  Bank  of 
Keokuk    

Piatt  V.  Hibbard    

Planters',  etc.,  Ins.  Co.  v.  Selma 
Sav.  Bank 

Planters  &  Farmers'  Xat.  Bank  of 
Baltimore  v.  First  Nat.  Bank  of 
Wilmington    

Poorman  v.  Mills  &  Co 

Potts  V.  Wallace    

Potter  V.  Merchants'  Bank   

Power  V.  First  Nat.  Bank  of  Fort 
Benton  

Pratt  V.  Eaton   

Preston  v.  Prather    

Preston  et  al.  v.  Canadian  Bank  of 
Commerce 

Prescott  Nat.  Bank  v.  Butler 

Prescott  v.  Haughey   

Presbyterian  Congregation  v.  Car- 
lisle Bank 

Prewitt,  Trustee,  v.  Trimble 

Price  V.  Holcomb    

V.  Riverside  L.  &  I.  Co 

Priet  V.  Reis    

Pullman  v.  Upton  


IIG  N.  Y.  441  23 

3  La.  Rep.  568  101 

52  Pa.  St.  206  811 

166  Pa.  St.  456 556 

168  Pa.  St.  468,  47  Am.  St. 

896 533,  537,  556 

12  Pick.  483  151 

88  Tenn.  380,  12  S.  Vi.   919.  17 

Am.  St.  900,  7  L.  R.  A.  93 .  .  297 

33  Eng.  C.  L.  Rep.  469 176 

124  N.  C.  561,  32  S.  E.  889.  .  .  167 

129  Mass.  425  491 

10  Watts  (Pa.),  397 103 

131  U.  S.  371  357 


2  Cent.  L.  J.  692  328 

7  Cow.  497  392,  393 

63  Ala.  585  55 


75  N.  C.  534  466 

35  Cal.  118  316 

32  Fed.  272  70 

28  N.  Y.  641  180,  189 

6  Mont.  251  416,  465 

79  N.  Y.  449  491 

137  U.  S.  604  391,  502 

23  Fed.  179  537 

157  Mass.  548  16 

65  Fed.  653  115 

5  Pa.  St.  345 498 

92  Ky.  176  131 

89  Iowa,  123,  56  X.  W.  407 ..  .  69 

56  Cal.  431  509 

93  Cal.  85  509 

96  U.  S.  328  75 


Queenan  et  al.  v.  Palmer  et  al .  .  . 
Quincy  First  Nat.  Bank  v.  Ricker. 
Quin  V.  Earle   


Q. 


117  111.  619  74 

22  Am.  Rep.  104,  71  111.  439..  296 
95  Fed.  728  239 


R. 


Ragsdale  v.  Franklin    

Ranger  v.   Champion   Cotton   Press 
.    Co 


25  Miss.  143    151 

51  Fed.  61   69 


XXXVlll 


Table  o1'~  Cases. 


[References  are   to   pages.] 


Rankin  v.  Fidelity  Ins.  Co 

Redington  v.  Woods    

Reeves  v.  State  Bank 

Reese  v.  Bank  of  Commerce 

Reed  v.  Home  Sav.  Bank   

V.  Boston  jMachine  Co 

Reid  V.  Eatonton  Mfg.  Co 

Republican   Mountain    Silver   Mines 

V.  Brown  et  al 

Reynolds  v.  Simpson  &  Ledbetter.. 

— —  V,  Crawfordsville  Bank   

Rice  V.  Citizens'  Nat.  Bank 

Richardson  v.  Denegre   

V.  Irons   

Richmond  v.  Blake    

V.   Irons    

Rich  V.  Niagara  County  Sav.  Bank. 
Ridgely   Bank   v.   Patton   &   Hamil- 
ton   

Riley  v.  Albany  Sav.  Bank 

Riverside  Bank  v.  First  Nat.  Bank 

of  Shenandoah  

Robertson   v.    Bufi'alo    County   Nat. 

Bank ' 

Robinson  v.  Ames    

V.  Bidwell 

V.  Hall 

V.  Turrentine 

Robarts  v.  Tucker    


Roberts  a-.  Hill   

Roeblings    Sons'    Co.    v.    First   Nat. 

Bank  of  Richmond,  Va 

Rogers  v.  Huntington  Bank    

Rome  Sav.  Bank  v.  Kramer 

Root  V.  Oleott    

Rouvant  v.  San  Antonio  Nat.  Bank. 
Runyan  v.  Lessee  of  John  G.  Coster, 

etc 

Runner  v.  Dwiggins    

Ryan  v.  Dunlap   

V.  ^Manufacturers  &  Merchants' 

Bank 


189  U.  S.  242 75 

45  Cal.  406  292 

8  Ohio  St.  406.  .  .453,  455,  405,  471 

14  Md.  271 498 

130  :\Iass.  443.  39  Am.  Rep.  468.  492 

141  Mass.  454  294 

40  Ga.  98,  2  Am.  Rep.  563 70 

58  Fed.  044  53 

74  Ga.  454  381 

112  U.  S.  405  379 

21  Ky.  L.  Rep.  340,  51  S.  W. 

454 297 

93  Fed.  572  239 

121  U.  S.  27  526 

132  U.  S.  592  • 22 

121  U.  S.  27  78,  SO,  528 

5  T.  &  C.  (N.  Y.)  589 251 

109  111.  479  401,  471 

36  Hun,  513  259 

74  Fed.  270  278 

58  N.  W.  715 128 

20  Johns.  140  431,  403 


22  Cal.  379  

63  Fed.  222  

59  Fed.  554  60, 

16  Q.  B.  500,  15  Jur.  987,  20 

L.  J.  Q.  B.  270,  71  E.  C.  L. 
500 

23  Blatchf.  312  


72 
98 

79 


297 
525 


30  Fed.  744  378 

12  S.  &  R.  77 497 

32  Hun,  270  491 

42  Hun,  536  107 

63  Tex.  610  290,  301 

14  Pet.  122  219 

147  Ind.  238  82 

17  111.  40  152,  108 

9  Dalv.  308  129 


s. 


Sacry  v.  Lobree 

Saginaw  Bank  v.  Western  Pa.  Title, 

etc.,  Co 

Salilien  et  al.  v.  Bank  of  Lonoke.  . . 

St.  Albans  Bank  v.  Farmers',  etc., 
Bank 

St.  Louis,  etc.,  R.  R.  Co.  v.  Terre 
Haute  &  Indianapolis  R.  R.  Co.. 


84  Cal.  41    518 

105  Fed.  491    316 

10   S.  W.   373,   90  Tenn.   221..   419 

472 

1.0  Vt.   141.  33  Am.  Dec.  188..   296 

145  U.  S.  393 357 


Table  of  Cases.  xxxix 

[References  are  to   pages.] 

St.    Nicholas    Bank    v.    State    Nat. 

Bank 128  X.  Y.  26,  27   N.   E.  849 .  .   417 

405 

Salter  v.   Burt    20  Wend.  205    282 

Salem  Bank  v.  Glouster  Bank 17   Mass.   1    390 

Savings  Institution  v.  Nat.  Bank.  .        89  Me.  500    529 

Samuel  v.  Holladay    8.    C.    21    Red.    Ca.s.    30G 52 

Savinss  Bank  v.  Burns    104   Cal.   473    134,  385 

Sawyer  v.  Hoag    17   Wall.   GIO    493 

Savior  V.  Bushong  100   Pa.    St.   23,   45   Am.    Rep. 

353 2SS 

Schmidt  v.  Blood   9  Wend.  268    392 

Sehneitman  v.  Noble    75  Iowa,  120,  39  N.  W.  224 .  .  . 

Schneider  v.  Irving  Bank   30  How.  Pr.  190.  1  Dalv,  500. .    288 

Schoenwald  v.  Bank    57  N.  Y.  418   ' 489 

School  District  v.  First  Nat.  Bank.         102   Mass.    174    237 

Schrader     v.     Manufacturers"     Nat. 

Bank 133  U.  S.  67   78,  528 

Schrick  v.  St.  Louis  Mutual  House 

Bldg.  Co 34  Mo.  423 54 

Schumacher  v.  Trent  18  Tex.  Civ.  App.  17,  44  S.  W. 

460 465 

Scovill  V.  Thayer   105  U.  S.  143  225,  227 

Scott  v.  National  Bank   72  Pa.  St.  471    246 

V.  Gilkey 153  111.  168,  39  N.  E.  265 470 

v.  Ocean  Bank  in  the  Citv  of 

New  York    '.  .  .  .        23  N.  Y.  289   412 

V.  Latimer 89    Fed.   843    71 

Second  Nat.  Bank  v.  Burt 93  N.  Y.  233,  244    324,  384 

•  V.  Cvmunings   S9  Tenn.  609,  35  Am.  Rep.  691.    466 

Second   Nat.    Bank   of   Lafavette   v. 

Hill   ' 75  Ind.  223   401 

Second   Nat.   Bank  of   Baltimore   v. 

T.  S.  Wrightson.  Exr.  of  S.  Stine.       63  Md.  81    322 

Security  Bank  v.  National  Bank  of 

the  Republic    23  Am.  Rep.   129    185 

Seeber  v.  Commercial  Nat.  Bank ...        77  Fed.  957    399 

Seeberger  v.  McCormick  178  111.  404   97 

Seligman  v.  Bank    3  Hughes,  647    3D0 

Selma  &  T.  R.  R.  Co.  v.  Tipton 39  Ind.  344    36 

Selden  v.  Equitable  Trust  Co 94  U.  S.  419   19 

Selz  V.  Collins    55  Ind.  App.  55    445 

Seneca  County  Bank  v.  Neass 5  Den.  329   : 109 

Sewall  V.  Lancaster  Bank   17   S.  &  R.  285    497,  498 

Sharp  V.  National  Bank  of  Birming- 
ham           87  Ala.  644    329 

Shinkle   et   ux.  v.   First   Nat.   Bank 

of  Ripley   22  Ohio  St.  516   377 

Shipman  v.  State  Bank   126  N.  Y.  318,  27  N.  E.  371.  37 

N.  Y.  St.  376,  12  L.  R.  A.  791, 

22  Am.  St.  821   .  .  .' 297 

Shute  V.  Pacific  Nat.  Bank   136  Mass.  487    316,  504 

Simons  v.  Fisher   55  Fed.  905   127 

Simpson    v.    Ingham     2  B.  &   C.  6.5,  S.  C.  3  D.  &  R. 

249    405 

V.  Savings   Bank    56  N.  H.  466  477 

V.  Wald-by 63  Mich.  439,  30  N.  W.  199.  .  .   465 

467,  468 


xl                                        Table  of  Cases. 

[References  are  to  pages.] 

Sistare  v.  Best   SS  X.  Y.  527   402 

Skillnian  v.  Titus    3  Vr.  90 281 

Slaughter  House  Cases  IG   Wall.   36    3 

Slee  V.  Bloom   10  Am.  Dec.  273    55 

Smedes  v.  Bank  of  Utica   20  Johns.  371,  3  Cow.  662 459 

Smith  V.  Board,  etc 38   Conn.   208 109 

V.  Brooklyn  Sav.  Bank 101  N.  Y.  58,  54  Am.  Rep.  653.    490 

V.  First  Nat.  Bank 45  Neb.  444 325 

V.  Janes 20  Wend.   192   268 

V.  Lawson    IS  W.  Va.  212   49,  330 

V.  Londoner 5  Colo.  365 70 

V.  Miller 43  N.  Y.  171    267 

V.  Mechanics',  etc.,  Bank   ....        6  La.  Ann.  610 290 

V.  North  America  Mining  Co.       1  Nev.  357   228 

Snow  V.  Alley 144  Mass.  546   294 

Solomon  v.  Bates  118  N.  C.  321.  24  S.  E.  746,  118 

N.  C.  311,  24  S.  E.  478..  110,  115 

Southerland  y.  Olcott   95  N.  Y.  93  229 

Southern     R.    R.     Co.     y.     Stevens' 

Executors 87  Pa.  St.  190 218 

Spafford    y.    Fir.st    Nat.    Bank    of 

Tama  City 37  Iowa.  181   328 

Spaulding  y.  Andrews    48  Pa.  St.  411  279 

Spense  v.  Iowa,  etc..  Cons.  Co 36  Iowa,  407   70 

Spring  Valley  W.  W.  v.  San  Fran- 
cisco          22  Cal.  4.34 37 

Spurlock  y.  Pacific  R.  R.  Co 61  Mo.  319    56 

Spyker   v.    Spence    8  Ala.  333    128 

Stacy  y.  Dane  County  Bank 12  Wis.   629    453,  460 

Stanley  y.   Stanley    .' 26  Me.   191    66 

V.  Lincoln    trust    Co 144  Mo.  562    565 

Star   Fire  Ins.    Co.   y.    New   Hamp- 
shire Nat.  Bank   60  N.  H.  442 296,  299,  306 

Star  y.  Stiles   19  Pac.  225   503 

State  y.  Bienyille  Oil  Works 28  La.  Ann.  204    69 

y.  Bonnell 35  Ohio  St.   10   67 

y.  Fields 62  N.  W.  653   523 

y.  First  Nat.  Bank  of  Clark.  .        51  N.  W.  587   512 

y.  Oyerton 24  N.  J.  L.  435   53 

y.  Pacific  Brewing,  etc.,  Co..  21  Wash.  451.  58  Pac.  584,  47 

L.  R.  A.  208   69 

y.  Scougal    3  S.  Dak.  55    2,       3 

y.  Sportsman  Park  Assn 29  :Mo.  App.  326    69 

y.  St.  Louis,  etc.,  Ry.  Co 29  Mo.  App.  301   69 

y.  Woodmansee  .    .  .'. IN.  Dak.  246 2 

y.  Warner 60  Kan.  94    523 

State    ex    rel.    Attorney-General    y. 

Seneca  County  Bank 5  Ohio  St.  170 511 

State  Nat.  Bank  of  Fort  Worth  y. 

Thomas   Mfg.  Co 17  Tex.  Ciy.  App.  214,  42  S.  W. 

1016 465 

V.  Newton  Nat.  Bank 66  Fed.  691    177 

•  y.  James  Reilly   124  111.  464   260 

State  Trust  Co.  y.  Sheldon 68  Vt.  259    318 

State  Bank  v.  Armstrong 4  Dey.  519   405 

State  of  Iowa  y.  Eifert   102   Iowa,    188    522 

State    of    Nebraska     y.    First    Nat. 

Bank  of  Orleans  88  Fed.  947    239,  372 


Table  of  Cases.  xli 

[References  are  to   pages.] 

Stearns  v.  Lawrence   S3  Fed.  738   131 

Stebbins  v.  Lardner  48  N.  W.  847    406 

Stephens  v.  Overstolz   43  Fed.  46.5   513 

Stephens  v.  Schuchmann    32  Mo.  App.  333    525 

Stewart  v.  National  Union  Bank  of 

Maryland 2  Abb.   (U.  S.)   424 325 

Steers  v.  Liverpool  Steamship  Co.  .        57  N.  Y.  1 392 

Steger  v.  Davis 8  Tex.  Civ.  App.  23,  27   S.  W. 

1068   56 

Stein  V.  Howard  et  al 65  Cal.  616 228 

Stevens  v.  Hill   29  Me.  133 99 

Stewart  v.  Huntingdon  Bank 11  S.  &  R.   (Pa.)   267 106 

Stockton    V.    Mechanics',    etc.,    Sav. 

Bank 32  X.  J.  Eq.   163 492 

Storts  V.   George    150  :\lo.   1    526 

Streissguth    v.     National     German- 
American  Bank    43  Minn.  50   465,  468 

Strong  V.   Brooklvn   Cross-Town  R. 

R.    Co ."^ 03    N.    Y.   426    231 

Strong  V.  Foster   17  C.  B.  201   405 

Sturges  V.  Bank  of  Circleville 11  Ohio  St.  153 158,  175 

Stuart  v.  Havden    169  U.  S.  1 75 

Sturtevant  v.'sturtevant   20  N.  Y.  39   76 

Stutz  V.  Handlev    41    Fed.  531   68 

Suit  V.  Woodhail   113  Mass.   391    105 

Sullivan  v.  LeAviston  Institution..  .  56  Me.  507,  96  Am.  Dec.  500..  489 

490 

Surtees  v.  Hubbard   4    Esp.   243    244 

Sweenv  v.  Easter   1  Wall.  166   443 

Sweet'v.  Stevens    7  R.  I.  375 285 

V.   Barney    23   N.   Y.   335 251 

Svkes  V.  First  National  Bank 2  S.  Dak.  242 237 


V.  People    132    111. 


Taber  v.  Perrot   2  Gall.  565 4.54 

Talladega  Ins.  Co.  v.  Woodward 44  Ala.  287 316 

Taplev  v.  Martin    116   Mass.   275 50 

Taylor  v.  Hutton    43  Barb.   195 100,  135 

V.  Empire  State  Bank 66  Hvm.  538 480 

Ten  Evck  v.  Pontiac,  etc.,  Co 74  Mich.  226,  41  N.  W.  905.  .  .  92 

Thatcher   v.   Bank   of  the   State   of 

New  York    5  Sandf.  121,  10  Mich.  196.  .36,  187 

Third    Nat.    Bank    of    St.    Louis   v. 

Allen   et  al 59  Mo.  310    306 

Thomas  v.  Bank    82  N.  Y.   1 278 

V.  Railroad  Co 101  U.  S.  71 356,  565 

V.  International  Bank   46  111.  App.  461    313 

Thompson  v.  Bank  of  British  North 

America 82  N.  Y.   1 297 

V.  Co 58    Miss.    423 91 

V.  St.  Nicholas  Nat.  Bank 146  U.  S.  240,  113  N.  Y.  325 .  .  275 

V.   German   Ins.   Co 77  Fed.  258 505 

Tiernan  v.  Commercial  Bank 7  How.  648 457 

Tift  V.  Quaker  City  Nat.  Bank 141  Pa.  St.  550 110 


xlii                                   Table  of  Cases. 

[References  are  to   pages.] 

Tishimingo  Sav.  Inst.  v.  Buclianan.        00  Miss.  496 491 

Titus  V.  Mechanics'  Xat.  Bank .35  X.  J.  L.  588 453,  465.  468 

V.  Railroad  Co 37  X.  J.  L.  98 125 

Toner   v.    Fulkerson    125  Ind.  224,  25  X.  E.  218 70 

Toof   V.    Martin 13  Wall.  40 519 

Townslev  v.  Sumirall    2    Pet.    170 430,  402 

Townsend  v.  Williams 23   S.   E.   461 238 

Trenholm,   Comptroller  of  the  Cur- 
rency,  V.    Commercial   Xat.   Bank 

of  Dubuque    38  Fed.  323 508 

Tremont  Bank  v.  Paine 28  Vt.  24 124 

Tripp  V.  Curtenius    36  Mich.  494 316,  504 

True  V.  Thomas    16  Me.  36    312 

Tyler   v.    Smith 18  B.  Mon.  793 295 

Tyson  v.  State  Bank G  Blackf.  225   453,  465 

u. 

Underhill   v.    Santa    Barbara    Land 

Co 93  Cal.  300   8 

Union  Xat.  Bank  v.  Hunt 7  Mo.  App.  42 330.  500 

V.  Rowan 23  S.  C.  339 366 

V.  Oceana   Co.   Bank SO    111.    212 288 

Union  Bank  v.  Laird 2  Wheat.   390    497 

Union  vSavings  Assn.  v.  Selignian..  92  ^Mo.  035.  15  S.  W.  630...  70,  76 
Union  Pacific   Railway   v.    Chicago, 

etc.,  Ry    103  U.  S.  564 357 

L'nion  Sav.    Bank    of    San    Jose    v. 

Leiter 145    Cal.    696 495 

United    States    v.    American    Exch. 

Xat.  Bank   70    Fed.    232 442 

V.  Britton 107  U.  S.  655 189 

V.  Barrv 36  Fed.  246 69 

V.  First  Xat.   Bank  of  Coflfev- 

ville 82    Fed.   410 285 

V.  Knox 102  U.  S.  422    78 

V.  Mann 95  U.  S.  580 10 

V.  Xational  Bank  of  Ashville.        73  Fed.  379 200,  372 

V.  Xew  York  Xat.  Park  Bank.        0    Fed.    852 296 

V.  X'^ational  Exchange  Bank. .        45    Fed.    103 297 

V.  Stanford 161   U.  S.  412 72 

United  States  Bank  v.  Stearns 15    Wend.    314 50 

V.  Bank  of  Georgia 10  Wheat.  333.  6  L.  ed.  334 .  .  296 

545 
United   States   Xat.    Bank   v.    First 

Xat.  Bank  of  Little  Rock 79    Fed.   296 124,   127,   128,  361 

United  German  Bank  v.  Katz 57  :\Id.   128 491 

Upham  V.  Lefavour   11    :\Iet.    174 404 

Upton  V.   Tribilcock 91   U.   S.   45 225 

V.    Xational    Bank    of    South 

Reading 120   Mass.    153 379 


Y. 

Vail  V.  Xewmarks  Sav.   Inst :!2  X.  .7.  Eq.  031 52.5 

y-.xn  Louven   v.   First  Xat.   Bank   of 

Kingston 54  X.  Y.  071 124,  358 


Table  of  Cases. 


xliii 


Vance  v.  Lowther   . . 
Van  Wart  v.  Wooley 


[References  are  to   pages.] 


Vance   v.   Mottley 

Vansands      v.      Middlesex      County 

Bank 

Veeder  v.   Miidp;ett    

Ventura  &  Ojai  Ry.  Co.  v.  Hartraan. 
Vercoutere  v.  Golden  State  L.  Co . .  . 

Vilas   Nat.   Bank  v.  Strait 

Voss  V.  German  American  Bank .  .  . 


1   Exch.  Div.  176    264 

3  B.  &  C.  439,  S.  C.  5  D.  &  R. 
374 430.  454,  461 


92  Tenn.  310,  21  S.  W.  593. 


26  Conn. 
95  N.  Y. 
116  Cal. 
116    Cal. 

58    Vt 
83    111 


144. 
295. 
260. 
410. 


448. 
599. 


170 

56 
225 

64 
112 
124 
405 


w. 


Wager  v.  Hall . 

Wait  V.  Nashua  Armory  Assn 

Walker  v.  Bank  of  the  State  of  New 

York 

V.  Walker  

Wall  V.  Provident  Savings  Inst.  .  .  . 
Wallace     v.      Exchange      Bank      of 

Spencer  

Walter  v.  Merced  Academy  Assn .  .  . 
Walworth    Co.    Bank    v.    Farmers' 

Loan,   etc.,   Co    

Vv'arner  v.  Mower    

Warren  Bank  v.   Suffolk 

Ward  V.  Allen 

— — ■  V.  Farwell 

V.  Johnson 

V.  Smith   

Warhus  v.  Bowery  Sav.  Bank 

Warner  v.  Mower    

Warren  et  al.  v.  Shook 

Washington  Bank  v.  Lewis 

Washington  Nat.  Bank  v.  Pierce.:. 
Washington    First    Nat.     Bank     v. 

Whitman 

Washington.  Libby,  et  al.  v.  Union 

Nat.    Bank    ..  .'. 

Washburn  v.  Huntington 

Waterloo  Mining  Co.  v.  Kuenster.  . 

Watkins  v.  National  Bank    

Watson  V.  Phoenix  Bank , 

Watts  V.  Christie   

Way  V.  Butterwortli 

Welch  V.  Goodwin   

Weirner  v.  Second  Ward  Sav.  Bank. 

Weils  v.  Black   

Wells,  Fargo  &  Co.  v.  L'nited  States, 

— —  V.   Enright   et  al 

Welles  V.  Graves    

Wellfley  v.  Shenandoah,  etc.,  Co... 
Werk  V.  Mad  River  Valley  Bank.. 
Westminster  Bank  v.  Wheaton .... 
Western  Nat.  Bank  v.  Armstrong.. 


16   Wall.    584 

23  Atl.  77 125 

5  Seld.  582 430,  431,  462,  46", 

5  Heisk.  425 419 

6  Allen,  320,  3  Allen,  .96.  .481,  483 

126  Ind.  2G5    169 

126    Cal.    582 64 

14   Wis.   325 125 

11    Vt.    385 67 

10  Cush.    582 466 

2    Met.    53 279 

97  111.  593   9 

5  111.  App.  30 491 

7  Wall.  447    406,  416 

21  N.   Y.   543 490 

11  Vt.  385    67 

91   U.  S.  704 19,  22 

22  Pick.  24 105 

6  Wash.  491,  33  Pac.  972 130 

94  U.  S.  343,  24  L.  ed.  229 297 


99    111.    622 

78  Cal.  573 

158  111.  259,  41  N.  E.  906 

51  Kan.  254    

8   Met.   217 

1 1  Beav.  546    

106   Mass.   75    

123  Mass.  71.  25  Am.  Rep.  24.  . 
76  Wis.  242,  44  N.  W.  1096.  .  . 

117    Cal.    157 55,  72, 

45    Fed.    337 

127  Cal.  669 

41  Fed.  4.59 

83   Va.   768 

8  Ohio  St.  302 

4  R.  I.  30    

152    U.    S.    346,    14    Sup.    Ct. 
572 159,  165,  338, 


378 
521 
466 
528 
284 
259 
3 
296 
490 
506 
443 
318 
508 
234 
268 
282 

348 


xliv 


Table  of  Cases. 


[References  are  to  pages.] 


Wharton  v.  Walker 

Whetstone  v.  Ottawa  University.  .  . 
Wheeler  v.  Aiken  Co.  Loan  &  Sav. 

Bank 

Wlieelock  v.  Kost  et  al 

Whitney  Arms  Co.  v.  Barlow  et  al. 
Whitney  y.  Butler  

y.'  First  Nat.  Bank  of  Brattle- 

boro 

White  V.  National  Bank 

V.  Franklin   Bank    

y.  Wood   

Whiteliead  y.  Walker   

Wickham  y.  Hull   

Wickersham  y.  Chicago  Zinc  Co... 

y.  Crittenden   

Wiggins     V.      Free     Will      Baptist 

Church 

Wiley  y.  First  Xat.  Bank  of  Brat- 

tleboro  

Willets  y.  Pha?nix  Bank 

Williams  y.  Union  Bank 

v.  Drexel    

y.  ^IcKay 

Wilson  et  al.  y.  Tolson . 

Wild  y.  Bank  of  Pasamaquoddy .  .  . 

Winslow  V.  Harriman  Iron  Co 

Winter    y.     Baldwin 

y.  Muscogee  R.  R.  Co 

Wingate  v.  ]Mechanics'  Bank 

Winton  y.  Little    

Witte  y.  Vincenot 

Witters.  Receiyer.  etc.  v.  Sowles... 
Wood    &    Co.    y.    ^Merchants'    Sav., 

Loan  &  Trust  Company 

Wood  y.  Pierce 

Wood    River    Bank    v.    First    Nat. 

Bank  of  Omaha    

Woodruff   V.   Plfint    

AVriglit  v.  Oroville  Mining  Co 

Wylie  y.  Northampton  Bank 

Wynian   v.   Citizens'   Nat.   Bank   of 

Faribault 


4   B.  &  C.   163 244 

13  Kan.  320 51 

75    Fed.    781 Ill 

77    111.    296 76 

63   N.  Y.  62 15 

118  U.  S.  655 80 

55    Vt.    154 247 

102  U.  S.  658 153,  422.  423,  443 

22  Pick.   181 249 

129   N.  Y.  527 227 

9  M.  &  W.  .505 431.  463 

00    Fed.    326 78 

18  Kan.  481 108 

93   Cal.   17    97,  122 


49   Mass.   301, 


47  Vt.  546    178, 

2  Duer,   121    

21    Tenn.   339 

14  Md.  566    

46  N.  J.  Eq.  25.  18  Atl.  824.  .  . 
79   Ga.    137 

3  Mason,    505,    Fed.    Cas.    No. 
17.640    152, 

42  S.  W.  698 

89  Ala.  483 

11   Ga.   438 

10  Pa.  St.  104 416,  453, 

94  Pa.  St.  64 

43  Cal.  325 

31  Fed.  1,  38  Fed.  700.. 59,  78, 


68 

242 
277 
50 
297 
169 
421 

361 

172 
10 
218 
406 
124 
241 
111 


41  III.  267 401,  406 

2  Disn.  411 70 

36  Neb.  744  448,  450 

41  Conn.  344 268 

40  Cal.  20 97 

119  U.  S.  361 242 

29  Fed.  754 325 


Y. 

6  Wash.  348 50 

69  N.  Y.  382 358 

6  Mass.  181 296 

Vough  23  N.  J.  Eq.  325 56 

Grote 4  Bing.  253  301 


Yakima  Nat.  Bank  v.  Knipe 
Yerkcs  y.  National  Bank.  .  . 
Youn"  v.  Adams 


CHAPTER  I. 


I 


BANKING   A   CONSTITUTIONAL  AND  LEGISLATIVE 
PRIVILEGE. 

§  1.  Rig'ht  of  banking  controlled  by  legislation. 

The  right  of  banking  was  originally  a  common-law  right. 
The  privilege  was  without  restriction  and  open  to  all.  The 
privilege  of  private  banking,  however,  has,  by  constitutional 
and  legislative  enactments  passed  by  many  of  the  States,  been 
either  prohibited  or  placed  under  control  and  regulation  of  law. 
The  pri^dlege  of  private  banking,  it  is  held  by  leading  authori- 
ties, is  one  which  the  Constitution  or  Statute  of  a  State  may  for- 
bid. Some  of  the  courts,  however,  question  this  doctrine  and 
hold  that  the  Legislature  may  make  the  issuing  of  notes  a  fran- 
chise ;  but  as  to  the  other  branches  of  banking,  they  deny  the 
right  of  a  Legislature  to  interfere.  The  reasoning  is  based  upon 
the  constitutional  grounds  that  "  no  State  shall  make  or  enforce 
any  law  which  shall  abridge  the  privileges  or  immunities  of 
citizens  of  the  United  States,  nor  shall  any  State  deprive  any 
person  of  life,  liberty,  or  property,  without  due  process  of  law, 
nor  deny  to  any  person  within  its  jurisdiction  the  equal  pro- 
tection of  law." 

This  question  as  early  as  1818  was  presented  to  the  Supreme 
Court  of  Judicature  of  the  State  of  Xew  York  in  the  case  of 
the  People  v.  Utica  Insurance  Co.,  15  Johns.  (N.  Y.)  358.  The 
action  was  an  information  in  the  nature  of  a  quo  warranto  by 
the  Attorney-General  against  the  defendant  for  exercising  bank- 
ing privileges  without  authority  from  the  Legislature,  and  was 
based  upon  an  act  of  the  Legislature  commonly  called  the 
"  Restraining  Laws,"  which  provided  that  "no  person  unauthor- 
ized by  law  shall  subscribe  to  or  become  a  member  of  any  as- 
sociation or  proprietor  of  any  bank  or  fund  for  the  purpose 
of  issuing  notes^  receiving  deposits,  making  discounts,  or  trans- 
acting any  other  business  which  incorporated  banks  do  or  may 
transact  by  virtue  of  their  respective  acts  of  incorporation." 

The  court,  in  defining  the  right  of  private  banking  under  this 

[1] 


2  Ba^skixg  a  Legislative  Pkivilege.  [ch.  i. 

4 

Statute,  says,  "  The  right  of  banking,  since  the  Restraining 
Act,  is  a  privilege  or  immunity  subsisting  in  the  hands  of  citi- 
zens by  grant  of  the  Legislature.  The  exercise  of  the  right 
of  banking,  then,  with  us,  is  the  assertion  of  a  grant  from  the 
Legislature  to  exercise  that  privilege,  and  consequently  it  is  the 
usurpation  of  a  franchise,  unless  it  can  be  shown  that  the  privi- 
lege had  been  granted  by  the  Legislature." 

The  Legislature,  by  the  above  act,  did  not  confine  the  restric- 
tion to  the  issuing  of  notes,  but  included  the  receiving  of  de- 
posits, and  the  making  of  discounts,  unlawful  and  prohibitive, 
unless  the  person  conducting  this  branch  of  banking  had  the 
privilege  or  authority  from  the  Legislature. 

In  the  case  of  Xance  v.  Hemphill,  1  Ala.  551,  the  court  in 
substance  says:  ^'  Where  the  Constitution  or  Legislature  does 
not  prohibit  private  banking,  it  is  a  common-law  privilege;  and 
is  a  right  that  any  individual  may  exercise  mitil  forbidden  by 
the  Legislature." 

The  Supreme  Court  of  the  State  of  Xorth  Dakota,  in  the  case 
of  the  State  of  Xorth  Dakota  ex  rel.  Marshall  T.  Goodsill  v. 
Thomas  Woodmansee,  1  X.  Dak.  246,  held  that  a  legislative  act 
which  prohibits  all  persons  from  doing  a  banking  business 
within  the  State,  except  corporations,  which  are  organized  under 
the  law,  is  constitutional.  The  court  says,  "  As  a  matter  of  fact, 
we  have  been  unable  to  find  an  authority,  and  we  have  searched 
diligently,  which  has  ever  questioned  the  right  of  the  Legisla- 
ture in  the  exercise  of  police  power  to  regulate,  restrain,  and 
govern  the  business  of  banking." 

It  is  interesting  to  note  the  fact  that  the  question  is  again 
brought  before  the  Supreme  Court  of  the  State  of  South  Dakota 
in  the  case  of  State  v.  Scougal,  3  S.  Dak.  55.  In  this  case  the 
court  holds  that  the  Banking  Act  of  the  State,  in  so  far  as  it 
prohibits  an  individual  from  carrying  on  the  business  of  bank- 
ing other  than  the  issuing  of  notes,  and  circulating  the  same 
as  money,  is  in  conflict  with  the  Constitution  of  the  State, 
which  reads  as  follows: 

"  Xo  law  shall  be  passed,  granting  to  any  citizen,  class  of 
citizens,  or  corporation,  privileges  or  immunities  which  upon 
the  same  terms  shall  not  equally  belong  to  all  citizens  or  cor- 
porations." 

In  the  absence  of  a  constitutional  provision  or  inhibition,  the 


CH.  I.]  Banking.  3 

Constitution  being  silent  on  the  subject,  it  remains  a  question 
whether  the  legishitive  body  of  the  State  has  the  right  to  de- 
prive a  citizen  under  the  Fourteenth  Amendment  of  the  Con- 
stitution of  the  United  States  of  the  rights  and  privileges  guar- 
anteed to  him  by  said  constitutional  pro^dsion.^ 

The  business  of  banking  in  its  very  nature  creates  a  con- 
fidential and  trust  relationship,  which  exists  betwen  the  bank 
and  its  patrons ;  and  the  difficulties  that  depositors  and  those 
dealing  with  the  bank  necessarily  encounter  in  detecting  ir- 
regular practices,  and  in  ascertaining  the  real  financial  con- 
ditions of  the  same,  seem  to  be  sufficient  to  justify  inspection 
and  control.^ 

The  question  has  never  been  directly  presented  to  the  Su- 
preme Court  of  the  United  States,  and  until  it  passes  upon 
the  same,  which  it  must  do  when  judicially  brought  before 
it,  the  States  are  left  in  control  of  the  privilege ;  and  the  right 
or  privilege  of  private  banking  being  a  franchise,  which  may 
be  granted,  governed,  controlled,  or  prohibited  either  by  con- 
stitutional or  legislative  provisions  of  a  State,  the  power  is 
vested  in  the  State,  and  is  denominated  a  police  power ;  which 
may  be  exercised  and  imposed  upon  the  theory  that  all  private 
interests  are  made  subservient  to  the  general  interests  of  the 
community,  and  in  the  interest  of  public  safety. 

The  law  seems  to  be  settled  that  a  State  may,  by  constitu- 
tional enactment  or  legislative  provisions,  prohibit  private  bank- 
ing within  its  domain,  upon  the  principle  "  that  the  power  of 
the  States  over  police  regulations  is  supreme."  That  this  power 
is  not  restrained  by  the  Constitution  of  the  United  States  to 
the  States,  is  the  doctrine  as  enunciated  and  established  by  the 
Supreme  Court  of  the  United  States  in  Slaughter-House  Cases, 
16  Wall.  36,  and  Bartemeyer  v.  Iowa,  18  Wall.  129. 

The  right  of  banking,  therefore,  in  a  State,  being  a  privilege 
or  business  under  the  control  of  the  State,  it  cannot  be  con- 
ducted where  prohibited  by  the  law  of  the  State. 

1  Attorney-General    r.    Utica    Ins.  N.  E.  919;  Bank  v.  Henne,  O.  &  L. 

Co.,   15   Johns.    (N.  Y.)    .3.57;   Bank  Co.,   105   Cal.   376:   Way  v.   Butter- 

of   Augusta    V.   Earls,    13   Pet.    519;  worth,   106  Mass.  75. 

Nance     v.    Hemphill,     1    Ala.    551;  2  People    r.    Brewster,     4    Wend. 

State  r.  Scoujral,  3  S.  Dak.  55  ;  Du  498 ;  Blaker  v.  Hood,  53  Kan.  499 . 
Quoin    V.   Kellev,    176    111.    218,    .52 


4  Bankijtg  a  Legislative  Pkivilege.  [ch.  i. 

The  United  States,  under  the  Constitution  and  the  hiws  of 
Congress,  is  suj)renie  in  its  authority  to  form  a  bank  and  con- 
duct the  same.  It  is  supreme  in  its  authority,  "  to  coin  money, 
regulate  the  vahie  thereof  and  of  foreign  coin."  It  is  also 
within  the  privilege  of  Congress  to  make  gold  and  silver,  or 
anything  else  it  may  designate  as  money,  a  legal  tender. 

The  States  are  prohibited  from  this  power,  but  they  may 
form  a  bank  and  conduct  the  same  and  issue  notes  and  circulate 
the  same  as  money  and  manage  the  bank  wholly  in  the  in- 
terest of  the  State ;  but  the  States  are  prohibited  from  forming 
through  constitutional  conventions  and  indorsement  thereof  by 
the  people.  Constitutions  empowering  them  to  make  notes  or 
an}i:liing  but  gold  and  silver  coined  by  the  government  of  the 
United  States  a  "  legal  tender." 

The  reasons  for  these  prohibitive  provisions,  which  were 
enacted  and  became  a  part  of  the  Constitution  of  the  United 
States,  are  historically  and  judicially  stated  in  the  case  of 
Edwards  v.  Kearzy,  96  U.  S.  595. 

The  Supreme  Court,  in  explaining  the  reasons  for  the  adop- 
tion of  the  constitutional  provisions,  says: 

''  The  history  of  the  National  Constitution  throws  a  strong 
light  upon  this  subject.  Between  the  close  of  the  War  of  the 
Rebellion,  and  the  adoption  of  that  instrument,  unprecedented 
pecuniary  distress  existed  throughout  the  country. 

The  discontents  and  uneasiness,  arising  in  a  great  measure 
from  the  embarrassment  in  which  a  great  number  of  individuals 
are  involved,  continued  to  become  more  extensive.  At  length, 
two  great  parties  were  formed  in  every  State,  which  were  dis- 
tinctly marked,  and  which  pursued  distinct  objects  with  syste- 
matic arrangement.  5  Marshall  L.  of  Wash.  75.  One  party 
sought  to  maintain  the  inviolability  of  contracts,  the  other  to 
impair  or  destroy  them. 

The  emission  of  paper  money,  the  delay  of  legal  proceedings, 
and  the  suspension  of  the  collection  of  taxes,  were  the  fruits 
of  the  nile  of  the  latter,  wherever  they  were  completely  domi- 
nant.    5  Marshall  L.  of  Wash.  86. 

The  system  called  justice  was,  in  some  of  the  States,  in- 
iquity reduced  to  elementary  principles.  *  *  *  In  some 
of  the  States  creditors  were  treated  as  outlaws.  Bankrupts 
were  armed  with  legal  authority  to  be  persecutors,  and  by  the 


CH.  I.]  Ba^^kixg.  5 

shock  of  all  confidence,  society  Avas  shaken  to  its  foundations. 
Fisher  Ames  Works  (ed.  of  1859),  120. 

Evidences  of  acknowledged  claims  on  the  public  would  not 
command  in  the  market  more  than  ane-fifth  of  their  nominal 
value.  The  bonds  of  solvent  men,  payable  at  no  distant  day, 
could  not  be  negotiated  but  at  a  discount  of  30,  40,  or  oO  per 
cent,  per  annum.  Landed  property  would  rarely  command  any 
price ;  and  sales  of  the  most  common  articles  for  ready  money 
could  be  made  only  at  enormous  and  ruinous  depreciation. 

'^  State  Legislatures,  in  too  many  instances,  yielded  to  the 
necessities  of  their  constituents,  and  passed  laws  by  which 
creditors  were  compelled  to  wait  for  the  payment  of  their  just 
demands  on  the  tender  of  security,  or  to  take  property  at  a 
valuation,  or  paper  money  falsely  purporting  to  be  the  repre- 
sentative of  specie.     Eamsey  Hist.  LT.  S.  77. 

"  The  effects  of  these  laws  interfering  between  debtors  and 
creditors  were  extensive.  They  destroyed  public  credit  and 
confidence  between  man  and  man,  injured  the  morals  of  the 
people,  and  in  many  instances  insured  and  aggravated  the  ruin 
of  the  unfortunate  debtors  for  whose  temporary  relief  they 
were  brought  forward.     2  Ramsey  Hist.  S.  C.  429. 

"  Besides  the  large  issues  of  Continental  money,  nearly  all 
the  States  issued  their  own  bills  of  credit.  In  many  instances 
the  amount  was  very  large.  2  Phillip's  Hist.  Sketches  of  Am. 
Paper  Currency,  29. 

"  The  depreciation  of  both  became  enormous.  Only  one 
per  cent,  of  the  Continental  money  was  assumed  by  the  new 
government.  jSTothing  more  was  ever  paid  upon  it.  Act  of 
Aug.  4,  1790,  §  4,  1  Stat,  at  L.  140;  2  Phillips'  Hist.  Amer. 
Paper  Currency,  194.  It  is  needless  to  trace  the  history  of 
the  emissions  by  the  State. 

"  The  Treaty  of  Peace  by  Great  Britain  declared  that  the 
creditors  on  either  side  shall  meet  with  no  lawful  impediment 
to  the  recovery  of  the  full  amount  in  sterling  money  of  all 
bona  fide  debts  heretofore  contracted.  The  British  Minister 
complained  earnestly  to  the  American  Secretary  of  State  of 
violation  of  this  guaranty.  Twenty-two  instances  of  laws  in 
conflict  with  it  in  different  States  were  specifically  named.  1 
Am.  St.  Papers,  195,  190,  199,  and  237.  In  South  Carolina, 
laws  were  passed  in  which  property  of  every  kind  was  made 


6  Backing  a  Legislative  Pkivilege.  [ch.  i. 

legal  tender  in  pajTuent  of  debts,  although  payable  according 
to  contract  in  gold  and  silver.  Other  laws  installed  the  debt, 
so  that  of  sums  already  due  only  a  third  and  afterward  only  a 
fifth,  were  securable  in  law.  2  Eamsey  Hist.  S.  C.  429.  Many 
other  States  passed  laws  of  similar  character.  The  obligation 
of  the  contract  was  as  often  invaded  after  judgment  as  before. 
The  attacks  were  quite  as  common  and  effective  in  one  way 
as  in  the  other.  To  meet  the  evils  in  their  various  phases, 
the  Xational  Constitution  declared  that  'No  State  should  emit 
bills  of  credit,  make  anything  hut  gold  and  silver  coin  a  legal 
tender  in  payment  of  debts,  or  pass  any  law,  *  *  *  im- 
pairing the  obligations  of  contracts.'  All  these  provisions  grew 
out  of  previous  abuses.  2  Curt.  Hist,  of  Const.  366.  See 
also  the  '  Federalist,'  Xos.  7  and  44.  In  the  number  last 
mentioned,  Mr.  Madison  said  that  such  laws  were  not  only  for- 
bidden by  the  Constitution,  but  were  contrary  to  the  first  prin- 
ciples of  the  social  compact  and  to  every  principle  of  sound 
legislation. 

"  The  treatment  of  the  malady  was  severe,  but  the  cure  was 
complete.  No  sooner  did  the  new  government  begin  its  auspi- 
cious course  than  order  seemed  to  arise  out  of  confusion.  Com- 
merce and  industry  awoke  and  were  cheerful  at  their  labors, 
for  credit  and  confidence  awoke  with  them.  Everywhere  was 
the  appearance  of  prosperity,  and  the  only  fear  was  that  its 
progress  was  too  rapid  to  consist  with  the  purity  and  simplicity 
of  ancient  manners.     Fisher  Ames'  Works,  supra,  122. 

"  Public  credit  was  reanimated.  The  owners  of  property 
and  holders  of  money  freely  parted  with  both,  well  known- 
ing  that  no  future  law  could  impair  the  obligation  of  the  con- 
tract.    2  Ramsey  Hist.,  supra,  433." 

We  find,  then,  the  supreme  right  of  banking,  the  coining 
of  money  and  regulating  the  value  thereof,  to  be  vested  in  the 
Constitution  of  the  United  States ;  but  the  Constitution  does 
not  prohibit  the  States  which  form  the  Union  and  nation  from 
creating  or  authorizing  banks,  but  only  prohibits  them  from 
making  bank  notes,  or  anything  but  gold  and  silver  coined  by 
the  government  of  the  United  States,  a  legal  tender. 

The  right  of  banking,  then,  exclusive  of  coining  money, 
and  regulating  its  value  in  a  State  can  be  governed  by  the  State. 
It  then  becomes  a  privilege   or  franchise  whereby  a  person 


CH.  I.]  Banking.  7. 

or  individuals  may  be  authorized  by  law  to  conduct  the  busi- 
ness of  banking. 

When  banks  are  duly  authorized  and  incorporated  accord- 
ing to  the  provisions  of  law,  they  become  private  corporations. 
A  national  bank,  organized  under  the  National  Banking  Act, 
is  a  private  corporation. 

The  right  of  banking  within  the  State  being  vested  in  the 
Constitution  and  legislative  power  of  the  State,  and  the  priv- 
ilege being  conceded  to  be  a  franchise  granted  by  the  law,  or 
by  special  enactment  of  the  Legislature,  and  one  which  may  be 
controlled  and  regulated  under  the  police  powers  of  the  States, 
private  banking  may  be  therefore  prohibited  by  constitutional 
or  statutory  enactments. 

Banking  institutions  must,  where  such  constitutional  or  legis- 
lative inhibitions  exists,  before  beginning  the  business  of  bank- 
ing, incorporate  as  the  law  of  the  State  may  require,  following 
the  provisions  laid  down  in  the  formation  of  such  corporations ; 
and  when  duly  incorporated,  having  complied  with  the  special 
banking  law  in  force  in  the  State  where  such  laws  are  enacted, 
they  then  become  lawful  institutions  and  have  the  right  of 
banking. 


CHAPTER  II. 


STATE  REGULATION  OF  BANKING  AFTER  ORGANIZATION. 

§  2.  State  has  power  to  regulate  the  business. 

The  State  has  the  power  to  regulate  the  business  of  banking 
conducted  by  all  banks  organized  within  the  State,  and  of 
foreign  banking  corporations  doing  business  within  the  State, 
but  a  State  has  no  power  to  define  the  authority  or  regulate 
the  business  of  a  national  bank.  This  power  is  vested  in  and 
exercised  by  Congress  alone.  But  it  is  held  in  the  case  of 
Hoke  V.  People,  122  111.  511,  that  a  State  court  has  jurisdic- 
tion over  a  national  bank  clerk  for  forgery,  notwithstanding 
he  was  punishable  for  the  same  act  under  the  Revised  Statutes 
of  the  United  States,  section  5209. 

A  State  may  prescribe  restrictions  upon  State  banks  which 
are  incorporated  under  a  general  or  special  law,  but  cannot  take 
away  any  power  or  privilege  granted  to  them  by  a  general  law. 

The  State  may  place  a  limitation  upon  the  amount  of  in- 
debtedness which  a  bank  may  incur,  providing  that  it  shall 
not  create  an  indebtedness  in  an  amount  to  exceed  its  capital 
stock  subscribed  or  paid  up.^ 

The  fact  that  debts  so  created  does  not  render  void  notes  and 
mortgages  securing  them.^ 

It  may  also  prohibit  the  taking  of  or  loaning  money  upon 
certain  securities  such  as  mining  stocks,  and  may  prescribe 
reasonable  regulations  as  to  the  investment  of  its  deposits.? 

It  may  also  provide  that  a  certain  per  cent,  of  its  net  earn- 
ings, after  all  expenses  and  losses  are  deducted  for  the  current 
year,  shall  be  placed  as  a  reserve  fund. 

And  the  law  may  provide  how  this  fund  may  be  turned  into 
capital  stock  of  the  bank,  thereby  increasing  and  enlarging  the 
capital. 

It  may  also  limit  the  amount  of  indebtedness  of  any  one 
person,  firm,  or  corporation  to  the  bank. 

1  C.  C.  California,  309.  3  9  Cush.   (Mass.)   604. 

2  Underbill   r.   Santa   Barbara,  93 
Cal.  300. 

[8] 


cii.  II.]  Banking.  9 

And  may  also  prohibit  certain  persons,  its  officers,  or  direc- 
tors, from  becoming  indebted  to  the  bank  in  any  sum  where 
they  act  in  the  capacity  as  trustees. 

It  may  also  prohibit  the  depositing  of  public  funds  in  a 
bank,  and  make  such  an  act  a  penal  offense  against  a  bank  for 
taking  the  same. 

It  may  also  require  that  reports  shall  be  published  showing 
all  dejiosits  which  are  uncalled  for  and  have  been  held  for  a 
certain  period,  and  a  failure  to  comply  with  such  requirements 
may  be  made  an  offense  punishable  by  fine  and  imprisonment.* 

The  State  may  also  provide  that  a  public  commissioner,  or  a 
board  of  bank  commissioners  shall  be  appointed,  whose  duties 
shall  be  to  examine  into  the  affairs  of  banks.  They  may  be 
given  full  power  and  authority  to  take  possession  of  banks^ 
where  found  insolvent. 

!Mational  banks  are  regulated,  as  stated,  by  the  law  author- 
izing them,  and  Congress  alone  can  place  restrictions  or  limita- 
tions upon  their  business. 

It  has  been  held  that  where  Congress  has  made  an  act  a 
crime  and  punishable,  a  State  does  not  lose  its  right  to  punish 
the  offending  party  also.^ 

The  State  may  impose  and  levy  a  license  tax  upon  incorpo- 
rated State  banks  and  prohibit  a  bank  from  doing  business 
unless  such  tax  is  paid.  But  such  a  license  tax  to  be  constitu- 
tional must  apply  to  all  corporations. 

The  power  of  the  State  in  regulating  the  business  of  all  cor- 
porations is  supreme,  and  it  may  place  such  restrictions  and 
limitations  upon  each  class  as  may  be  in  the  interest  of  the 
State  and  the  public  generally  who  may  deal  with  the  corpora- 
tion, but  all  such  inhibitions  and  restrictions  must  be  within 
the  scope  of  legislative  power. 

A  State  may  prescribe  the  terms  and  conditions  upon  which 
a  foreign  bank  or  corporation  can  do  business  in  the  State  by 
prescribing  that  it  shall  perform  certain  things  before  begin- 
ning business,  and  shall  not  be  allowed  to  conduct  business  on 
any  more  favorable  terms  than  a  corporation  incorporated  in 
the  State. 

4Eacrle  Ins.   Co.   r.  Ohio,   1,5.3  U.  Co.,    82    N.    Y.    172;    Chicago    Life 

S.    446;    Chicago    Life    Ins.    Co.    i".  Ins.    Co.    v.    Auditor.    101    111.    82; 

Needles,    11.3   U.    S.   574;   Attornej-  Ward  r.   Farwell,  97  III.  593. 
General  v.  North  America  Life  Ins.  5  13  N.  E.  823. 


10  State  Regulation  of  Bankixg.  [ch.  ii. 

When  the  Constitution  or  the  statute  of  a  State  requires 
that  a  corporation  shall  have  and  maintain  an  office  or  place 
in  the  State  for  the  transaction  of  its  business,  where  transfers 
of  stock  shall  be  made,  and  in  which  shall  be  kept,  for  inspec- 
tion by  every  person  having  an  interest  therein,  books  in  which 
shall  be  recorded  the  amount  of  capital  stock  subscribed  and  by 
whom,  together  with  the  names  of  the  owners  of  stock,  and  the 
amount  owned  by  them  respectively,  the  amount  of  stock  paid 
in,  and  by  whom,  the  transfer  of  stock,  the  amount  of  its 
assets  and  liabilities,  and  the  names  and  places  of  residence  of 
its  officers,  mandamus  proceedings  will  lie  against  the  officer 
having  custody  of  the  books  to  enforce  the  right.*' 

The  officers  of  a  national  bank  cannot  be  compelled  to 
exhibit  the  books  of  the  bank  to  State  officers  for  the  purpose 
of  furnishing  a  basis  for  a  State  taxation  of  the  deposits,  as 
against  the  depositors.  But  it  is  held  that  a  State  court  has 
power  to  issue  compulsory  process  against  a  national  bank,  com- 
pelling it  to  disclose  the  names  of  its  depositors,  and  the  amount 
of  their  deposits,  in  order  to  ascertain  whether  any  money 
deposited  therein,  subject  to  taxation  within  the  county^  has 
not  been  returned  for  that  purpose  by  the  owners.''' 

The  proceedings  in  such  a  case  cannot,  where  instituted  by 
a  State  court,  be  stayed  by  a  writ  of  injunction  issued  by  a 
Federal  court.^ 

Section  3177  of  the  Revised  Statutes  of  the  United  States 
gives  authority  to  any  collector,  deputy,  or  inspector  of  internal 
revenue,  to  enter  in  the  daytime  any  building  or  place  within 
his  district  where  any  articles  or  objects  subject  to  such  tax- 
ation are  made,  produced,  or  kept,  so  far  as  it  may  be  necessary 
for  the  purpose  of  examining  such  objects  or  articles ;  and  any 
owner  who  refuses  to  admit  such  officer  or  suffer  him  to  examine 
such  article  or  object  shall,  for  every  such  refusal,  forfeit  the 
sum  of  $500. 

Held:  That  under  this  provision  paid  bank  checks,  which 
were  duly  stamped  at  the  time  they  were  made,  are  not  such 
articles  or  objects  subject  to  taxation,  and  that  the  bank  may 
lawd^ully  refuse  the  collector  to  examine  the  checks.^ 

6  Winter  r.  Baldwin,  89  Ala.  48.*?.  8  First  Nat.  Bank  of  Younjrstown 

7  First  Nat.  Bank  of  Younfrstown       r.  Hughes  et  al.,  6  Fed.  Rep.  737. 

V.  Hughes  et  al.,  6  Fed.  Rep.  737.  f>  Ignited  States,  plaintiff  in  error, 

r.  Mann,  95  U.  S.  580. 


CH.  II.]  Banking.  11 

The  statute  may  define  who  have  the  right  to  examine,  or 
inspect  certain  books  of  the  corporation,  and  where  language 
is  used  that  ''  every  person  having  an  interest  therein,"  etc., 
shall  have  such  a  privilege,  it  may  be  construed  to  be  a  depositor 
or  creditor. 

The  privilege  is  denied  to  such,  however,  unless  the  statute 
expressly  provides  that  they  may  do  so. 

Xo  book,  journal,  or-  document  can  be  made  the  subject  of 
examination  by  a  depositor  or  creditor,  unless  the  authority  is 
expressly  provided  for  in  the  statute  or  authorized  by  order  of 
a  court  of  competent  jurisdiction. 

A  creditor  is  one  who  has  a  la^vful  claim  against  the  bank. 
The  claim  may  be  one  which  the  bank  disputes  and  refuses  to 
recognize ;  and  when  disputed  and  invalid,  the  bank  may  refuse 
access  to  its  books  for  the  purpose  of  examination ;  and  where 
there  is  no  penalty  or  measure  of  damages  fixed  by  the  law 
against  the  bank,  for  a  refusal  to  allow  depositors  and  creditors 
the  right  to  inspect  any  such  books  of  the  corporation,  the 
bank  can  be  held  for  only  the  actual  damage  arising  from 
such  refusal.  A  violation  of  any  national  or  State  law  can  be 
inquired  into  only  through  an  action  brought  by  the  Comp- 
troller of  the  Currency  or  the  Attorney-General  of  the  State. 


CHAPTER  III. 


BANKING  WITHOUT  AUTHORITY. 

§  3.  Unauthorized  banking. 

The  business  of  banking,  or  the  privilege,  being  one  which 
is  -withheld  or  granted  by  the  legislative  power  of  a  State,  all 
persons  being  prohibited  unless  the  privilege  is  first  obtained, 
the  act  of  banking  when  conducted  without  obtaining  this  right 
is  termed  unauthorized  banking. 

A  private  banker,  being  one  who  conducts  the  business  of 
banking  ^^'ithout  first  securing  such  a  right,  where  the  law 
requires  that  such  a  privilege  must  be  obtained  from  the  power 
authorized  to  grant  the  same,  is  conducting  an  unla^^'ful  busi- 
ness ;  and  is  subject  to  punishment  as  in  such  cases  made  and 
provided.  Advertising  that  deposits  will  be  received  and 
checks  paid  implies  the  business  or  act  of  banking. 

A  corporation,  organized  to  conduct  a  business  of  construct- 
ing and  operating  railroads,  buying  and  selling  real  estate,  dry 
goods^  and  the  like,  if  it  conducts  the  business  of  receiving 
money  on  deposit  for  others,  and  repaying  the  same  upon 
orders  or  checks,  is  conducting  the  business  of  banking  unlaw- 
fully. 

The  law  of  a  State  may  permit  the  formation  of  a  partner- 
ship, and  authorize  the  partnership  to  conduct  the  business  of 
buying  and  selling  property,  both  personal  and  real,  and  (dis- 
count notes  and  other  securities  which  is  a  part  of  the  author- 
ized business  of  banks)  such  a  business  may  not  be  unauthorized 
banking  as  construed  by  the  law  of  said  State.  Where  the 
partnership  is  formed,  the  receiving  of  money  and  holding  the 
same  for  others  and  paying  cheeks  is  an  act  of  banking. 

Again,  a  Building  and  Loan  Association  which,  in  its  general 
working  and  in  its  nature,  is  very  similar  to  banking,  may  con- 
duct the  business  of  trusts,  holding  money  placed  in  trust  with 
it,  either  by  individuals,  corporations,  or  courts;  but  it  has  no 
authority  to  conduct  the  business  of  banking  where  the  act  or 
law  authorizing  its  creation  does  not  grant  it  the  power  to  do 

[12] 


CH.  III.]  Bankiistg.  13 

any  business  other  than  that  for  which  it  is  specifically  incor- 
porated; and  if  it  conducts  the  business  of  banking,  receiving 
money  on  deposit,  discounting  notes,  and  securities,  and  loan- 
ing money  to  its  customers  on  commercial  paper,  or  otherwise, 
it  is  conducting  an  unlawful  banking  business. 

§  4.  A  de  facto  corporation. 

A  de  facto  corj^oration  is  one  acting  as  a  corporation  in  good 
faith.^ 

A  corporation  de  facto  exists  where  a  number  of  persons 
have  organized  and  are  acting  in  good  faith  as  a  corporation.^ 

A  bank  may  act  as  a  de  facto  corporation,  and  while  acting 
as  such  in  good  faith  without  authority  of  law,  its  acts  are 
lawful  and  cannot  be  inquired  into  excepting  through  the 
proper  authorities  of  the  State. 

All  acts  or  business  done  by  such  corporation  are  not  illegal, 
and  its  right  to  exercise  corporate  powers  while  performed  in 
good  faith,  the  bank  claiming  that  it  has  the  right  to  act,  will 
be  enforced  as  against  all  parties  dealing  with  it. 

It  is  also  held  that  one  who  borrows  money  from  such  a  cor- 
poration cannot  defeat  a  recovery  by  alleging  that  the  com- 
pany is  not  a  corporation.^ 

One  who  has  contracted  with  such  a  corporation,  and  received 
the  benefits  of  its  performance,  cannot  defeat  an  action  brought 
by  the  corporation  by  alleging  its  lack  of  power  to  contract 
or  its  want  of  legal  existence.* 

A  hank  that  acts  as  a  corporation ,  and  is  not  such,  ivith  the 
Ji'noirledf/c  of  the  fact,  hut  induces  another  hi/  fraud  to  deal 
with  it,  that  other  is  not  estopped  from  denying  the  existence 
of  the  corporation. 

§  5.  Ultra  vires  acts. 

An  ultra  vires  act  is  the  doing  of  a  thing  by  the  corporation 
which  it  has  no  power  to  do.  It  is  also  the  doing  of  a  thing 
which  the  charter  or  law  says  the  corporation  shall  not  do. 
A  banking  corporation  may,  in  the  first  instance,  believe  that 
ii  has  the  power ;  and  in  the  second,  do  a  thing  forbidden  it  by 

1  Lakeside  Ditch  Co.  r.  Crane,  80  3  Grangers  Business  Asso.  v. 
Cal.  181.  Clark,  67  Cal.  6.34. 

2  Martin  v.  Deitz,  102  Cal.  55,  41  4  Myer  i:  Bishop,  129  Cal.  204. 
Am.  St.  Rep.  151. 


14  Banking  Without  Authority.  [ch.  hi. 

it.-  charter  or  the  hiw,  knowing  that  it  did  not  have  tlie  power. 
The  hitter  act  is  forbidden  by  Statute,  and  is  illegah 

An  illegal  act  cannot  be  enforced.  It  is  doing,  or  attempt- 
ing to  do,  something  the  law  says  cannot  be  done.  This  act 
ehould  not  be  called  an  ultra  vires  act.  It  is  a  violation  of  an 
expressed  law. 

The  court  in  Central  Trans.  Co.  v.  Pullman  Palace  Car  Co., 
139  U.  S.  2-1,  says: 

''  The  view  which  the  court  has  taken  of  the  (juestion  pre- 
sented by  this  branch  of  the  case,  and  the  only  view  which 
appears  to  us  consistent  with  legal  practice,  is  as  follows: 
A  contract  of  a  corporation  which  is  ultra  vires,  in  the  proper 
sense,  that  is  to  say,  outside  the  object  of  its  creation  as  defined 
in  the  law  of  its  organization,  and  therefore  beyond  the  powers 
conferred  upon  it  by  the  Legislature,  is  not  voidable  only,  but 
wholly  void,  and  of  no  legal  effect.  The  objection  to  the  con- 
tract is,  not  merely  that  the  corporation  ought  not  to  have  made 
it,  but  that  it  could  not  make  it.  The  contract  cannot  be  rati- 
fied by  either  party,  because  it  could  not  have  been  authorized 
by  either.  Xo  performance  on  either  side  can  give  the  unlaw- 
ful contract  any  validity,  or  be  the  foundation  of  any  right  or 
action  upon  it. 

"  When  a  corporation  is  acting  within  the  general  scope  of 
the  powers  conferred  upon  it  by  the  Legislature,  the  corj)ora- 
tion,  as  well  as  persons  contracting  Avith  it,  may  be  estopped  to 
deny  that  it  has  complied  with  the  legal  formalities  which  are 
prerequisites  to  its  existence,  or  to  its  action,  because  such 
requisites  might  in  fact  have  been  complied  with.  But  when 
the  contract  is  beyond  the  powers  conferred  upon  it  by  existing 
laws,  neither  the  corporation,  nor  the  other  party  to  the  contract 
can  be  estopped,  by  assenting  to  it,  or  by  acting  upon  it  to 
show  that  it  was  prohibited  by  those  laws. 

"  The  doctrine  of  the  common  law  by  which  a  tenant  of  real 
estate  is  estopped  to  deny  his  landlord's  title  has  never  been 
considered  by  this  court  as  applicable  to  leases  by  realty  cor- 
porations for  their  roads  and  franchises.  It  certainly  has  no 
bearing  upon  the  question,  wdiether  this  defendant  may  set  up 
that  the  lease  sued  on,  which  is  not  of  real  estate,  but  of  per- 
sonal property,  and  which  includes,  as  inseparable  from  the 
other  proper  transfer,  the  inalienable  franchise  of  the  plaintiff. 


cii.  III.]  Banking.  15 

is  unlawful  and  void  for  want  of  legal  capacity  in  the  plaintiff 
to  make  it. 

"^  A  contract  ultra  vires  being  unlawful  and  void,  not  because 
it  is  in  itself  immoral,  but  because  the  corporation,  by  the  law 
of  its  creation,  is  incapable  of  making  it,  the  courts,  while  refus- 
ing to  maintain  any  action  upon  the  unlawful  contract,  ha^'e 
always  striven  to  do  justice  between  the  parties  so  far  as  could 
be  done  consistently  "with  adherence  to  law,  by  permitting  prop- 
erty or  money,  parted  with  on  the  faith  of  the  unlawful  con- 
tract^ to  be  recovered  back,  or  compensation  to  be  made  for  it. 
In  such  case,  however,  the  action  is  not  maintained  upon  the 
unlawful  contract,  nor  according  to  its  terms;  but  on  the  implied 
contract  of  the  defendant  to  return,  or,  failing  to  do  that,  to 
make  compensation  for,  property  or  money  which  it  has  no 
right  to  retain.^  To  maintain  such  an  action  is  not  to  affirm, 
but  to  disaffirm,  the  unlawful  contract." 

The  courts  hold^  that  where  a  contract  is  not  purely  ultra 
vires,  it  may  be  enforced.  For  example,  where,  by  a  failure 
to  enforce  it,  a  legal  wrong  might  be  perpetrated. 

In  the  case  of  Whitney  Arms  Co.  v.  Barlow  et  al,  63  X.  Y. 
62,  the  court  says: 

"  The  doctrine  of  ultra  vires,  wdiether  invoked  for  or  against 
a  corporation,  is  not  favorable  in  the  law.  It  should  never  be 
applied  where  it  will  defeat  the  ends  of  justice." 

The  court  further  says: 

"  It  is  now  very  well  settled  that  a  corporation  cannot  avail 
itself  of  the  defense  of  ultra  vires  when  the  contract  has  been 
in  good  faith  fully  performed  by  the  other  party,  and  the  cor- 
poration has  had  the  full  benefit  of  the  performance  of  the 
contract.  If  an  action  cannot  be  brought  directly  upon  the 
agreement,  either  equity  will  grant  relief  or  an  action  in  some 
other  form  will  prevail.  The  same  rule  holds  e  converso.  If 
the  other  party  has  had  the  benefit  of  a  contract  fully  per- 
formed by  the  corporation,  he  Avill  not  be  heard  to  object  that 
the  contract  and  performance  were  not  within  the  legitimate 
powers  of  the  corporation." 

In  the  case  of  McCormick  v.  Market  National  Bank,  165 
U.  S.  538-540,  the  court  says: 

"  The  doctrine  of  ultra  \nres  by  which  a  contract  made  by  a 
corporation  beyond  the  scope  of  its  corporate  powers,  is  unlaw- 


16  Banking  Without  Authority.  [ch.  hi. 

fill  and  void  and  will  not  support  an  action,  rests,  as  this  court 
has  often  recognized  and  affirmed,  upon  three  distinct  grounds: 
the  obligation  of  anyone  contracting  with  a  corporation  to  take 
notice  of  the  legal  limits  of  its  powers;  the  interest  of  the  stock 
holders  not  to  be  subjected  to  risks  which  they  have  never 
undertaken;  and  above  all,  the  interests  of  the  public  that  the 
corporation  shall  not  transcend  the  powers  conferred  upon  it 
by  law."  ^ 

This  question  is  further  discussed  in  the  case  of  California 
Bank  v.  Kennedy,  167  U.  S.  362 ;  the  direct  question  at  issue 
in  this  case  being  whether  a  national  bank  could  take  and  hold 
the  stock  of  another  corporation.  The  court  in  discussing  the 
question  says: 

"  In  view  of  the  fact  that  the  defendant  was  a  national  bank 
deriving  its  powers  from  the  statutes  of  the  United  States,  the 
averment  of  a  particular  transaction  of  the  one  in  question  if 
entered  into  was  without  authority  of  law  and  cannot  in  reason 
be  construed  only  to  relate  to  the  law  controlling  and  governing 
the  conduct  of  the  corporation,  that  is,  the  law  of  the  United 
States." 

In  this  case  it  was  admitted  at  the  trial  that  the  stock  of  the 
Savings  Bank  was  not  taken  as  security,  or  anything  of  the  kind, 
and  it  is  not  disputed  in  the  argument  at  bar,  that  the  transac- 
tion by  which  this  stock  was  placed  in  the  name  of  the  bank, 
was  one  not  in  the  course  of  the  business  of  banking  for  which 
the  bank  was  organized. 

The  court  says: 

"  Whenever  divergence  of  opinion  might  arise  on  this  ques- 
tion from  ^conflicting  adjudications  in  some  of  the  State  courts, 
in  this  court  it  is  settled  in  favor  of  the  right  of  the  corporation 
to  plead  its  want  of  power.  That  is  to  say,  to  assert  the 
annulity  of  an  act  which  is  an  ultra  vires  act." 

In  the  ease  of  Central  Transportation  Company  v.  Pullman 
Palace  Car  Co.,  139  U.  S.  24,  the  court  says: 

"A  contract  of  a  corporation  which  is  ultra  vires,  in  the 
proper  sense,  that  is  to  say,  outside  the  object  of  its  creation  as 
defined  in  the  law  of  its  organization,  and  therefore  beyond 

5  Concord     First    Nat.     Bank     i\       Hennessy    v.    City   of   St.    Paul,   54 
Hawkins.    1.57   Mass.    .548:    Presoott       Minn.  219. 
Xat.  Bank  r.  Butler,  98  U.  S.  621; 


CH.  III.]  Baxkixg.  it 

the  powers  conferred  upon  it  by  the  Legislature,  is  not  voidable 
only,  but  wholly  void,  and  of  no  legal  effect.  The  objection  to 
the  contract  is,  not  merely  that  the  corporation  ought  not  to 
have  made  it,  but  that  it  could  not  make  it.  The  contract  can- 
not be  ratified  by  either  party,  because  it  could  not  have  been 
authorized  by  either.  Xo  performance  on  either  side  can  give 
the  unlawful  contract  any  validity,  or  be  the  foundation  of  any 
right  of  action  upon  it." 

The  rule  is  well  established  that  where  a  contract  is  made 
by  a  corporation  beyond  the  scope  of  its  corporate  powers,  it  is 
UDlaT\^ul  and  void. 

Unlawful  banking,  then,  is  the  conducting  of  the  business  of 
banking  by  a  person,  or  combination  of  persons,  who  have  not 
obtained  authority  where  the  law  requires  that  such  authority 
must  first  be  obtained. 

Unlawful  banking  may  also  be  the  conducting  of  the  business 
of  by  a  pretended  corporation ;  one  which,  at  the  time  of  enter- 
ing into  transactions  and  contracts,  well  knew  that  it  had  no 
power  or  authority  to  act. 

Unlawful  banking  may  also  be  acts  performed  by  duly  incor- 
porated corporations,  which  acts  are  either  specifically  denied 
the  corporation  by  the  charter,  or  forbidden  by  the  law. 
2 


CHAPTER  IV. 


BANKS  CLASSIFIED  AND  DEFINED. 

§  6.  Commercial  and  saviug^s  banks. 

Banks  are  classified  into  two  divisions,  namely,  Commercial 
and  Savings  Banks.  Commercial  banks  may  be  divided  into 
three  classes,  for  example,  a  bank  may  be  incorporated  solely 
for  the  purpose  of  receiving  money  on  deposit,  retaining  the 
deposit  for  the  depositor  and  repaying  the  same  back  to  him 
upon  demand.  The  business  of  this  kind  of  a  bank  is  com- 
mercial in  character,  and  is  called  a  bank  of  deposit. 

Again,  a  bank  may  be  incorporated  to  receive  money  on  de- 
posit, and  repay  the  same  to  the  depositor  upon  demand,  and 
also  to  discoimt  notes,  securities  and  the  like  for  its  customers, 
and  others.  The  business  of  this  bank  is  also  commercial  in  its 
nature,  and  may  be  called  a  bank  of  deposit  and  discount. 

Again,  a  bank  may  be  incorporated  to  receive  money  on  de- 
posit, and  repay  the  same  to  the  depositor  upon  demand,  and 
to  issue  notes  and  circulate  the  same  as  money,  and  to  loan 
money,  discount  notes,  securities  and  the  like.  The  business 
of  this  kind  of  a  bank  is  also  commercial,  and  is  called  a  bank 
of  circulation,  deposit,  and  discount. 

A  commercial  bank  may  therefore  have  any  one  or  all  of 
these  elements  and  powers ;  and  when  endowed  with  any  one 
of  them,  it  is  termed  a  commercial  bank. 

Banks  are  again  divided  into  savings  banks.  Coming  under 
this  head  there  are  only  two  classes ;  one  is  called  Mutual 
Savings,  which  is  an  institution  incorporated  without  capital 
stock,  and  is  purely  mutual  in  its  nature  and  its  powers,  con- 
ducting business  only  for  its  members,  and  wholly  in  their  in- 
terest. While  the  other  is  a  savings  bank  incorporated  M^ith 
a  capital  stock,  and  is  authorized  to  receive  deposits  and  repay 
the  same  to  depositors,  loan  money,  and  by  special  power 
granted  by  Statute  in  some  of  the  States,  is  authorized  to  dis- 
count notes  and  issue  certificates  of  deposit.     This  kind  of  a 

[18] 


CH.  IV.]  Banking.  19 

bank,  although  denominated  as  a  savings  bank,  is  stripped  of 
all  the  elements  of  such  institutions. 

National  banks  are  commercial  in  character.  They  are 
institutions  authorized  directly  by  the  Government  of  the 
United  States,  and  are  empowered  to  conduct  a  banking  busi- 
ness, and  to  issue,  uunder  direction  of  the  Government,  their 
notes,  and  circulate  the  same  as  money.  Their  powers  are 
strictly  commercial. 

§  7.  General  definition  of  banking. 

A  banker  as  defined  by  a  leading  authority,  "  is  one  who 
conducts  the  business  of  banking,  keeps  an  establishment  for 
the  deposit  of  money,  bills  of  exchange,  etc." 

This  definition  may  be  enlarged  upon,  but  cannot  well  be 
improved.  A  definition  which  defines  a  banker  to  be  one  who 
conducts  the  business  of  banking  is  general  in  its  application. 

The  legitimate  business  of  banking  demands  that  a  banker 
shall  have  a  place  of  business ;  while  a  broker,  one  who  buys 
and  sells  securities,  etc.,  may  not  have  a  place  of  business, 
but  may,  and  frequently  does,  conduct  the  business  of  a  banker, 
without  ha\dng  a  place  of  business. 

§  8.  When  a  broker  becomes  a  banker. 

A  broker  becomes  a  banker  subject  to  taxation,  under  the 
revenue  law  of  the  United  States,  when  he,  as  an  agent,  re- 
ceives from  another  for  sale  or  discount  bonds,  bullion,  stocks, 
bills  of  exchange,  or  promissory  notes,  where  he  employs  capital 
of  his  own,  with  that  of  another,  provided  he  has  a  place  of 
business  where  credits  are  opened  for  that  purpose.^ 
The  court,  in  the  case  of  Warren  v.  Shook,  says: 
"  Having  a  place  of  business  where  deposits  are  received  and 
paid  out  on  checks,  and  where  money  is  loaned  upon  security, 
is  the  substance  of  banking."  The  court  also  gives  the  follow- 
ing illustration:  "  Thus,  if  A.  B.  has  $10,000,  which  he  desires 
to  invest,  and  purchases  U.  S.  stocks,  or  State  stocks,  or  any 
other  security,  he  does  not  thereby  become  a  broker.''  "  It  is 
only  when  making  sales  and  purchases  in  his  business,  his 
trade,  his  profession,  his  means  of  getting  a  living,  or  of  making 

1  Warren  r.  Shook,  91  U.  S.  704;  Selden  v  Equitable  Trust  Co.,  94 
U.  S.  419. 


20  Baxks  Classified  and  Defixed.  [cit.  iv. 

his  fortune,  that  he  becomes  a  broker,  within  the  meaning  of 
the  Statute." 

The  court,  in  the  case  of  Sehlen  v.  Equitable  Trust  Co., 
says : 

"  The  Statute  describes  three  classes  of  artificial  and  of 
natural  persons,  distinguished  bv  the  nature  of  the  business 
transacted  bv  them,  and  declares  that  individuals  embraced  in 
either  of  the  classes  shall  be  considered  bankers.  The  first 
class  is  composed  of  those  who  have  a  place  of  business  where 
credits  are  opened  by  the  deposit  or  collection  of  money,  or 
currency,  subject  to  be  paid  or  remitted  upon  draft,  check  or 
order.  '  It  is  not  claimed  that  the  company  engaged  in  that 
branch  of  business  or  that  they  are  included  in  this  first  class. 
The  agreed  state  of  facts  expressly  repels  any  such  claim. 

"  The  second  class  are  those  who  have  a  place  of  business 
where  money  is  advanced  or  loaned  on  stocks,  bonds,  bullion, 
bills  of  exchange  or  promissory  notes.  It  is  contended  on  be- 
half of  the  plaintiff  in  error  that  the  company  is  included  in 
this  claSs  because  it  advances  or  loans  money  on  bonds.  The 
case,  however,  states  that  all  the  loans  the  company  makes  are 
investments  of  its  own  capital  in  mortgage  securities  on  real 
estate.  It  is  true,  the  bonds  of  the  borrowers  are  taken  with 
the  mortgages,  but  the  bonds  are  mere  evidence  of  the  debt. 
The  money  is  advanced  or  loaned  on  the  security  of  the  real 
estate  mortgage,  and  not  on  the  security  of  the  bond.  We  think 
Congress,  in  the  cause  of  the  Act  we  are  now  considering,  in- 
tended reference  to  transactions  entirely  different  from  loans 
or  advances  made  on  the  personal  promise  or  undertaking  of 
the  borrower.  The  words  used  are  not  technical.  They  are, 
therefore,  to  be  understood  in  their  common  and  popular  sense, 
Dwarris,  Stat.  573.  And  that  in  common  understanding,  an 
advance  or  loan  of  money  on  stocks,  bonds,  bullion,  bills  of 
exchange,  or  promissory  notes,  is  an  advance  or  loan  where 
those  species  of  property  are  pledged  as  collaterals,  or  are  hy- 
pothecated to  secure  the  return  of  the  advance,  or  the  payment 
of  the  sum  lent,  is  unquestionably  true.  It  can  be  nothing  else 
where  the  money  is  advanced  or  lent  on  stocks  or  bullion; 
and,  by  the  Statute,  bonds,  bills  of  exchange  and  promissory 
notes  are  placed  in  the  same  catalogue  with  stocks  and  bullion. 


cii.  IV.]  Banking.  21 

All  of  them  are  like  the  subject  on  which  the  advance  or  loan 
is  made.  It  is  a  fair  presmnption,  therefore,  that  Congress 
regarded  an  advance  or  loan  on  bonds  as  similar  in  its  char- 
acter to  an  advance  or  loan  on  stocks,  invohdng  in  each  case 
an  hypothecation  of  the  subject  on  which  the  advance  is  made. 
If  not  so,  if  it  was  intended  to  embrace  loans  generally,  there 
was  no  necessity  for  introducing  .the  qualifying  words,  '  on 
bonds,  bills  of  exchange,  or  promissory  notes.' 

"  It  was,  however,  not  the  lending,  but  the  method  or  mode 
of  operation,  which  was  in  view.  If  it  was  mere  lending, 
Congress  had  in  contemplation,  it  is  difficult  to  conceive  of  a 
reason  why  mortgages  of  real  estate  were  not  included  with 
stocks,  bonds,  bullion,  etc.  But  it  is  a  well  kno^m  common 
usage  for  banks  to  make  advances  or  loans  on  the  hypotheca- 
tion or  pledge  of  such  property,  though  not  upon  the  hvpotheca- 
tion  or  mortgage  of  real  estate.  There  was  a  reason,  there- 
fore, for  omitting  real  estate  from  the  catalogue  of  things 
upon  which  the  advances  or  loans  contemplated  might  be  made. 
Advances  on  them  are  not  within  the  ordinary  business  of  a 
banker.  To  us,  therefore,  it  appears  plain,  that  it  is  the  busi- 
ness of  advancing  or  lending  in  the  mode  usual  with  bankers, 
that  is,  on  collaterals,  or  on  the  pledge  of  personal  property, 
that,  by  the  statute,  is  defined  to  be  banking  within  the  in- 
tention of  Congress,  and  that  lending  upon  mortgages  of  real 
estate  is  not  intended. 

"  The  third  class  described  by  the  statute  comprises  those 
who  have  a  place  of  business  where  stocks,  bonds,  bullion,  bills 
of  exchange  or  promissory  notes  are  received  for  discount  or 
for  sale.  The  language  is  not  '  wdiere  stocks,  bonds,  etc.,  are 
sold  '  or  '  are  held  for  sale.' 

"  Surely  Congress  did  not  intend  that  corporation  or  persons 
who  have  a  place  of  business  where  they  sell  their  stocks, 
bonds,  bullion,  bills  or  notes  should  be  regarded  as  bankers. 
If  they  did,  a  vast  proportion  of  the  corporations  and  of  the 
merchants  and  manufacturers  of  the  country  would  be  in- 
cluded. But  the  language  of  the  statute  is:  ^  Where '  such 
property  is  '  received  for  discount  or  for  sale.'  The  use  of  the 
word  '  received '  is  significant.  In  no  proper  sense  can  it  be 
understood  that  one  receives  his  own  stocks  and  bonds,  or  bills 
or  notes  for  discount  or  for  sale.     He  receives  the  bonds,  bills, 


22  Banks  Classified  and  Defined.  [ck.  iv. 

or  notes  belonging  to  him,  as  evidences  of  debt,  though  he 
may  sell  them  afterwards.  Xobody  would  understand  that  to 
be  banking  business.  But  when  a  corporation  or  natural  per- 
son receives  from  another  person,  for  discount,  bills  of  ex- 
change or  promissory  notes  belonging  to  that  other,  he  is  acting 
as  a  banker ;  and  when  a  customer  brings  bonds,  bullion,  or 
stocks  for  sale,  and  they  are  received  for  the  purpose  for  which 
they  are  bought,  that  is,  to  be  sold,  the  case  is  presented  which 
we  think  was  contemplated  by  the  Statute.  In  common  under- 
standing, he  who  receives  goods  for  sale  is  one  who  receives 
them  as  an  agent  for  the  jDrincipal  and  is  the  owner.  He  is 
not  one  who  buys  and  sells  on  his  own  account." 

Again,  the  Supreme  Court,  in  the  case  of  Richmond^  Plaintiff 
in  Error  v.  Blake,  Collector  of  Internal  Revenue,  132  U.  S. 
592,  lays  down  the  law  to  be  that: 

"  Where  a  broker  employs  his  own  capital  with  the  capital 
of  others  for  the  purpose  of  purchasing  and  selling  stocks, 
bonds,  bills  of  exchange,  or  promissory  notes,  he  is  a  banker 
under  the  revenue  law.  But  Avhere  he  negotiates  the  sale  of 
such  securities  for  others,  receiving  therefor  only  a  commission, 
he  does  not  become  a  banker  within  the  meaning  or  construc- 
tion of  sections  3407  and  3408  of  the  Revised  Statutes  of  the 
United  States." 

§  9.  Broker  and  banker  distinguished. 

The  business  of  a  broker  is  distinguished  from  that  of  a 
banker  in  this:  A  broker  buys  and  sells  stocks  and  securities 
for  others  on  commission,  while  a  banker  buys  and  sells  secu- 
rities by  investing  his  own  means,  and  the  capital  of  others  for 
a  profit  to  the  bank.  It  is  not  generally  considered  a  part  of 
the  business  of  a  bank,  to  conduct  a  brokerage  business  for 
others  on  commission.  The  ISTational  Banking  Law  expressly 
prohibits  this  power  to  Xational  banks,  and  declares  it  to  be 
unlawful  for  a  i^ational  bank  to  take  money,  or  the  capital  of 
others,  and  invest  the  same  for  them,  either  on  a  commission, 
or  otherwise.  It  is  the  business  of  a  National  bank  to  make 
investments  of  its  own  funds,  but  not  to  invest  for  others. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
Warren  v.  Shook,  91  U.  S.  704,  very  clearly  distinguishes  the 
business  of  a  banker  and  broker. 


cir.  IV.]  Banking.  23 

§  10.  Bank  further  defined. 

The  definition  of  a  banker  as  given  by  Gilbert  is,  "  a  dealer 
in  capital,  or,  more  properly,  a  dealer  in  money.  He  is  an 
intermediate  party  between  the  borrower  and  the  lender." 

This  definition  applies  more  directly  to  a  broker  who  acts  in 
the  intermediate  capacity  between  the  parties.  He  may,  and 
usually  does,  act  for  both  parties.  A  banker  who  receives 
money  on  deposit  for  the  j^urpose  of  re-loaning  the  same  is 
not  an  agent  for  the  depositor.  He  is  the  agent  of  the  bank. 
He  acts  only  for  the  bank,  and  never  consults  the  depositor  as 
to  the  character  of  security  or  class  of  loans  that  the  bank  may 
invest  in,  or  hold.  The  law  may  define  the  kind  of  investments 
or  securities  which  the  bank  may  take,  but  the  depositor  has 
nothing  to  say. 

§  11.  Private  banker  defined. 

A  private  banker  is  one  who  conducts  the  business  of  bank- 
ing without  incorporation,  and  without  any  special  privilege 
or  authority  of  law.^ 

A  private  banker  may,  when  not  prohibited  by  law,  conduct 
the  business  of  banking,  and  may  make  such  lawful  contracts 
with  his  dealers  in  relation  thereto,  as  to  receiving  and  the 
repayment  of  money,  as  may  be  mutually  agreed  uj)on  between 
the  parties. 

A  private  banker,  then,  is  one  who  conducts  the  business  of 
banking  without  incorporation,  or  a  fixed  capital  stock  in- 
vested; which  is  by  law  required  of  all  duly  incorporated  banks, 
excepting  mutual  savings  banks  which,  under  the  law  as 
enacted  bv  some  of  the  States,  may  become  incorporations  for 
the  purpose  of  doing  a  savings  bank  business,  without  capital 
stock. 

§  12.  Trust  companies  defined. 

A  trust  company  may  conduct  the  business  of  banking  when 
not  prohibited  by  law,  without  the  use  of  the  word  "  bank  " 
incorporated  in  its  charter.  The  name  of  a  corporation,  which 
may  indicate  its  business,  does  not  always  express  its  powers 
or  authority.  A  trust  company  formed  and  duly  incorporated 
under  an  act  of  the  Legislature  providing  for  the  incorporation 

2  Perkins    v.    Smith,    116    N.    Y.  441;   People  v.  Doty,  80  N.  Y.  225. 


24  Banks  Classified  and  Defined.  [ch.  iv. 

and  administration  of  trusts  and  of  trust  funds  only  and 
which  defines  its  powers  to  be  the  receiving  and  administering 
of  trust  funds,  is  not  a  bank,  and  its  manager  cannot  be  termed 
a  banker. 

This  subject  is  enlarged  upon,  and  further  discussed  under 
a  subsequent  chapter  treating  upon  trust  companies.  See  sec- 
tion 47. 

§  13.  Clearing  house  defined. 

A  clearing  house  is  a  voluntary  association  of  banks  for  the 
purpose  of  making  exchanges  of  notes,  checks,  bills^  and  moneys 
and  settlements  between  the  banks,  all  of  whom  must  belong  to 
the  association. 

In  the  case  of  O'Brien  v.  Grant,  146  X.  Y.  163,  166,  the 
business  of  the  clearing  house  is  defined  to  be  "  the  effecting, 
at  one  place,  of  the  daily  exchanges  between  the  several  asso- 
ciated banks,  and  the  payment  at  the  same  place  of  balances 
resulting  from  such  exchanges." 

A  clearing  house  is  not  a  bank  used  for  the  purpose  of 
receiving  moneys  or  other  securities  on  deposit.  Xeither  does 
it  do  a  discount  business.  Therefore,  it  is  not  a  bank.  It  may 
be  an  incorporated  body  composed  of  banks  where  such  banks 
may  become  stockholders,  but  is  usually  an  association  of 
bankers  for  the  purpose  of  making  exchanges.  A  clearing- 
house is  not  subject  to  taxation  under  the  revenue  laws. 
Neither  is  it  subject  to  examination  by  Xational  or  State 
examiners. 

The  powers  and  limitations  of  a  clearing-house  are  treated 
at  length  in  a  subsequent  chapter  on  clearing-houses.  See 
section  46. 

§  14.  Commercial  bank  further  defined. 

The  definition  of  a  banker  conducting  a  commercial  bank- 
ing business  is  properly  defined  to  be,  "  one  who  conducts  the 
business  of  banking,  Avho  has  a  place  or  keeps  a  place  or  room 
for  receiving  money  on  deposit,  and  repaying  the  same  out 
again  to  his  depositors."  He  may  buy  and  sell  (when  not  pro- 
hibited by  special  acts  of  law)  stocks,  bonds,  bills,  promissory 
notes,  checks,  evidences  of  indebtedness,  bullion,  and  bills  of 
exchange   for  the   accommodation  of  his  customers,   and  for 


cii.  IV.]  Banking.  25 

profit  to  the  bank.  He  may  invest  his  oAvn,  and  the  money  of 
liis  customers,  in  any  way  not  prohibited  by  law.  He  has,  how- 
ever, no  authority  to  issue  notes  of  the  bank  to  be  used,  cir- 
culated, or  passed  as  money,  unless  the  law,  by  constitutional 
and  legislative  enactment,  expressly  authorizes  the  privilege. 
He  may  act  as  an  agent  for  his  customers  and  depositors  in  the 
transaction  of  any  and  all  classes  of  business,  when  not  specifi- 
cally i^rohibited  by  law  from  so  doing.  It  will  be  seen,  there- 
fore, that  the  business  of  a  commercial  banker,  or,  in  other 
words,  the  definition  of  a  banker  of  this  class,  may  be  extended 
to  any  length. 

§  15.  Mutual  savings  bank  defined. 

A  mutual  savings  bank,  as  its  name  implies,  is  mutual  in 
character  and  principle.  It  is  an  institution  authorized  by  law, 
either  by  special  enactment  of  the  Legislature  (where  permitted 
by  the  Constitution)  or  under  the  general  laws  of  the  State. 

It  is  not  endowed  with  any  of  the  commercial  powers  of  a 
bank ;  and  while  called  a  bank,  its  business  comes  more  strictly 
mthin  the  duties  and  powers  of  a  trust  or  trustee.  It  receives 
the  money  of  its  members,  and  loans  the  same  only  for  their 
benefit.  The  general  definition  of  a  bank  does  not  apply  to  a 
mutual  savings  corporation.  A  mutual  savings  bank,  if  it 
may  be  called  a  bank,  is  a  place  where  money  is  received, 
invested  for,  and  paid  out  to,  its  members.  The  ofiicers  of  such 
an  institution  act  strictly  in  the  capacity  of  trustees.  It  cer- 
tainly does  not  come  within  the  definition  which  defines  a 
banker  to  be  "  a  money  changer  "  or  "  one  who  traffics  in 
money,  bills  of  exchange,  etc." 

§  16.  Capitalized  savings  banks  defined. 

There  is  considerable  difference  between  a  capitalized  sav- 
ings bank  and  a  mutual  savings  bank.  The  one  is  incorporated 
with  a  capital  stock,  while  the  other  has  no  capital  stock.  In 
the  one,  the  principal  object  is  to  engage  the  capital  for  profit 
to  the  stockholder.  In  a  capitalized  savings  bank,  the  depos- 
itor has  no  mutual  interest  with  the  stockholder.  This  kind 
of  an  institution  has  but  few,  if  any,  of  the  elements  of  a 
mutual  savings  bank. 

A  corporation  formed  with  a  capital  stock  to  conduct  a 
banking  business,  may  designate  itself  as  a  savings  bank;  and 


26  Banks  Classified  axd  Defined.  [ch.  iv. 

it  may  be  declared  to  be  such  by  the  law  and  the  courts.  But 
the  fact  that  it  has  a  capital  stock,  and  that  its  business  is 
principally,  if  not  wholly,  to  earn  diyidends  for  its  stockholders 
and  the  owners  of  said  capital  stock,  its  business  and  all  of  its 
acts  demonstrate  that  it  is  commercial  in  its  nature,  lacking 
all  the  elements  of  a  mutual  sayings  bank. 

§  17.  National  banks  further  defined. 

A  national  bank,  as  has  been  stated,  is  an  incorporated  insti- 
tution organized  under  the  law  enacted  by  the  Congress  of 
the  United  States,  authorizing  certain  j)ersons  to  carry  on  the 
business  of  banking. 

The  general  definition,  that  a  banker  is  "  one  who  conducts 
the  business  of  banking,''  applies  to  a  national  bank;  but  the 
powers  granted  in  the  conduct  of  a  national  bank,  by  reason, 
of  certain  limitations  placed  upon  it  and  specifically  enacted  in 
the  law  which  prohibits  certain  privileges  allowed  to  State 
banks,  confine  the  business  of  banking  under  the  national 
system  strictly  to  the  law  enacted  for  their  government  and 
management. 

The  powers  and  limitations  governing  a  national  bank  are 
very  clearly  defined  by  the  xS^ational  Bank  Act;  and  the  agents 
and  managers  of  a  national  bank  are  held  closely  to  the  enforce- 
ment of  the  law  governing  them. 

While  a  national  bank  is  clearly  commercial  in  its  character, 
business,  and  powers,  it  is  yet,  nevertheless,  estopped  from  con- 
ducting certain  kinds  of  commercial  transactions  which  are 
deemed  dangerous  for  such  institutions.  For  example,  the 
statute  fixing  the  powers  of  national  banks  specifically  pro- 
hibits a  national  bank  from  holding  real  estate  as  security  for 
a  debt,  unless  such  debt  has  been  previously  contracted  in  good 
faith. 

A  national  bank  is  also  prohibited  from  negotiating  loans 
for  its  o^^^l  customers;  and  by  implied  limitation  cannot  buy 
and  sell  stocks,  or  realty  bonds  on  commission.  All  of  these 
privileges  are  commercial  transactions,  which  may  be  carried 
on  by  commercial  State  banks  without  restriction,  and  unless 
a  special  statute  intervenes. 

It  will  be  seen,  therefore,  tliat  a  national  bank,  which  is 
endowed  with  commercial  powers,  is  restrained  by  law  from 


CH.  IV.]  Baxkixg.  27 

doing  certain   things  which    are   purely  commercial   in   their 
nature,  and  which  may  be  done  by  commercial  State  banks. 

§  18.  Enlarg^ed  and  specific  definition  under  State  authority. 

A  bank,  when  incorporated  under  the  general  laws  of  the 
State,  is,  as  stated,  a  private  corporation;  organized  and  to  be 
operated  for  profit  to  its  stockholders.  It  is  subject,  in  its 
privileges  and  powers  as  to  issuing  and  circulating  its  notes  as 
money,  to  the  laws  of  the  United  States,  as  enacted  by  Con- 
gress, and  the  laws  of  the  State  in  which  it  conducts  its  busi- 
ness. A  bank  may  be  one  of  deposit  where  persons  may  sim- 
ply deposit  their  money  for  safe-keeping,  and  one  where  the 
funds  may  be  kept  separate,  or  all  be  intermingled,  and  paid 
out  upon  demand  by  the  depositor.  A  bank  may  be  one  of 
discount,  where  persons  may  place  their  notes  for  sale  and 
discount,  the  profit  going  to  the  banker.  The  Supreme  Court 
of  the  United  States  has  decided  that  ''  the  discounting  of  notes 
by  a  person,  or  corporation,  for  profit,  where  the  customer's 
funds  are  used,  is  conducting  the  business  of  banking." 

Commercial  banks  more  dearly  defined. 

A  bank,  in  a  commercial  sense,  has  authority,  under  State 
law,  to  receive  deposits,  make  discounts,  and  circulate  its  own 
notes  as  money,  where  no  inhibition  is  enacted  by  the  Con- 
stitution or  law  of  the  State.  Such  institutions  are  clothed 
with  power  to  transact  a  commercial  banking  business.  The 
issuing  of  notes  and  circulating  the  same  as  money  is  not, 
however,  a  necessary  element  in  the  full  and  complete  exercise 
of  commercial  banking.  A  bank  incorporated  under  State 
authority  to  conduct  a  commercial  banking  business  has  power 
to  carry  into  execution  and  exercise  all  commercial  transactions 
necessary  in  the  conduct  of  its  business.  It  has  power  to  re- 
ceive money  on  deposit  from  persons,  municipalities  and  cor- 
porations (where  not  especially  prohibited  by  State  legislation), 
and  repay  the  same  to  its  depositors  upon  such  terms,  and  at 
such  times,  as  may  be  laT\^ully  agreed  upon.  It  has  the  right 
to  receive  general  and  special  deposits.  It  has  the  right  to 
discount  notes;  to  make  loans  on  personal  and  real  estate 
security,  under  regulation  of  law;  to  discount  foreign  and 
domestic  bills  of  exchange;  and  to  transact  any  and  all  other 
business  coming  under  the  commercial  class,  and  authorized 


28  Banks  Classified  axd  Defined.  [cii.  iv. 

by  law.  Its  business  is  called. commercial,  as  it  is  the  medium 
through  "which  the  exchange  of  merchandise  is  transacted.  It 
acts  as  the  beneficiary  for  the  commerce  of  the  world.  It  holds 
intercourse  "with  all  business  transactions,  either  directly  or  in- 
directly, and  becomes,  and  is,  indispensable  in  the  transactions 
of  business.  It  holds  a  confidential  relationship  with  all  custom- 
ers dealing  with  it ;  and  the  bank  has  the  right  to  protect  this 
relationship  against  all  persons,  and  cannot  be  compelled  to  dis- 
close this  right,  except  by  order  of  a  court  of  competent  juris- 
diction. 

Commercial  banks  are  the  active  agents  of  all  parties  who  mav 
do  business  with  them,  and  as  such  their  interests  are  mutual, 
and  in  the  conduct  of  the  business  they  are  governed  by  law, 
and  are  therefore  possessed  with  all  la^^'ful,  expressed,  implied, 
and  incidental  powers  necessary  to  carry  into  execution  their 
business  and  purposes. 

§  19.  Mutual  and  capitalized  savings  banks  more  clearly  dis- 
tinguished. 

A  savings  bank  may  be  mutual,  or  an  institution  organized 
with  capital  stock.  Mutual  sa'S'ings  banks  originally  were  or- 
ganized as  eleemosynary  institutions  in  character,  while  mutual 
in  principle ;  their  purpose  being  to  stimulate  and  fix  the 
habit  of  saving  with  the  poor.  They  were  fiduciary  agents, 
acting  for  those  with  limited  means,  which  could  not  be  easily 
invested';  but  when  an  accumulation  of  a  sufficient  fund  was 
obtained,  loans  could  be  made  and  all  depositors  became  in- 
terested in  the  profits. 

They  are  mutual  in  principle,  as  all  the  loans  are  made  in 
the  interest  of  the  members  or  depositors,  from  whom  the 
money  is  obtained.  In  case  of  loss,  the  bank  having  no  capital 
stock,  which  may  be  assessed  to  cover  the  same,  or  other  prop- 
erty out  of  which  it  may  be  paid,  the  loss  can  be  apportioned 
pi'O  rata  among  the  members. 

It  having  no  capital  stock,  its  management  must  be  con- 
ducted wholly  in  the  interest  of  the  members.  It  is  merely 
an  incorporated  institution,  organized  for  the  purpose  of  re- 
ceixdng  money  of  its  customers  or  members  on  deposit,  and 
investing  the  same  for  them,  and  repaying  the  same  upon  such 
terms  and  agreements  as  may  be  lawfully  entered  into  between 


CH.  IV.]  •  Ba^^ivIxg.  29 

themselves.  Xo  profits  can  be  made  upon  the  funds  except 
they  enure  to  the  benefit  of  the  members.  After  the  neces- 
sary expenses  are  paid  for  its  management,  as  stated,  all  the 
profits,  at  fixed  periods,  belong  to  the  members,  and  must  be 
ratably  divided  between  them. 

The  distinction  betv\^een  a  mutual  savings  banlc,  namely,  one 
without  capital  stock,  and  a  savings  bank  incorporated  with 
capital  stock,  is,  that  in  the  one  the  members  receive  all  the 
profits,  less  the  actual  expense  required  in  managing  the  same, 
and  are  liable  for  all  the  losses  pro  rata  among  the  members ; 
while  in  the  other,  the  depositors  receive  a  stipulated  divi- 
dend (that  the  directors  may  agree  with  the  depositors  as  to 
interests  or  dividends,  is  fully  conceded),  and  are  relieved  from 
any  liability  which  the  stockholder  may  be  required  to  pay; 
the  stockholder's  liability  being  fixed  by  the  law  of  the  State 
wherein  the  bank  is  located. 

Savings  banks,  with  or  without  capital  stock,  are  organized 
institutions  for  the  purpose  of  receiving  money  on  deposit  from 
their  members,  on  such  terms  as  may  be  mutuaUy  agreed  upon. 

In  a  savings  bank  purely  mutual,  and  without  capital  stock, 
the  conditions  upon  which  money  may  be  received  and  repaid 
to  its  members,  are  entirely  in  their  personal  control.  In  a 
savings  bank  organized  with  capital  stock,  the  mutual  principle 
is  entirely  eliminated,  and  money  can  be  received  and  repaid 
to  the  depositor  upon  such  terms  as  may  be  agreed  upon  be- 
tween each  customer  and  the  coi-poration,  acting  through  its 
directors. 

Savings  banks,  organized  with  capital  stock,  are  institutions 
having  a  fixed  liability  against  the  stock  in  case  of  loss,  or  in- 
solvency of  the  bank.  In  some  respects,  they  are  incidentally 
possessed  with  commercial  qualities  and  power ;  but  are  usually 
limited  by  law  to  a  class  of  investments,  which  are  allowed 
or  prohibited  by  legislative  enactments  of  the  State  where  they 
are  located.  The  Legislature,  or  statutory  laws  directing  what 
securities  may  be  taken  (and  in  some  cases  fixing  the  sum  or 
limit  that  can  be  loaned  upon  lands  and  other  securities), 
operates  as  a  guardian  of  the  depositor,  throwing  around  such 
institution  such  protection  and  safeguards  as  are  deemed  to 
be  wise,  the  laws  becoming  a  financial  shield  to  those  transact- 
ing business  with  the  bank. 


CHAPTER  V. 


THE  ORGANIZATION  OF  BANKS  AND  PROOF  OF  CORPORATE 

EXISTENCE. 

§  20.  Preliminary  steps  —  organization  of  national  banks. 

Section  5133,  Revised  Statutes  of  the  United  States  provides 
as  follows: 

''Associations  for  carrying  on  the  business  of  banking  under 
this  title  mav  be  formed  by  any  number  of  natural  persons, 
not  less  in  any  case  than  five.  They  shall  enter  into  articles 
of  association,  which  shall  specify  in  general  terms  the  object 
for  which  the  association  is  formed,  and  may  contain  any  other 
provisions,  not  inconsistent  with  law,  which  the  association 
may  see  fit  to  adopt  for  the  regulation  of  its  business  and  the 
conduct  of  its  affairs.  These  articles  shall  be  signed  by  the 
persons  uniting  to  form  the  association,  and  a  copy  of  them 
shall  be  forwarded  to  the  Comptroller  of  the  Currency,  to 
be  filed  and  preserved  in  his  office." 

The  foregoing  section  provides  for  the  formation  and  or- 
ganization of  a  national  bank.  The  language  of  the  statute 
is,  that  a  national  bank  can  be  formed  ''  by  any  number  of 
natural  persons,  not  less  in  any  case  than  five." 

§  21.  Who  are  natural  persons. 

Human  beings,  without  distinction  as  to  race  or  color,  male 
or  female,  are  natural  persons.  Corporations,  joint-stock  com- 
panies, firms,  or  associations  are  prohibited  from  the  very 
nature  of  their  creation  and  powers  in  forming  or  becoming 
a  principal  in  the  formation  or  organization  of  national  banks. 
While  the  stock  of  a  bank  can,  after  its  formation,  be  legally 
held  or  acquired  by  a  corporation,  it  cannot  acquire  the  same 
as  a  subscriber  in  the  primary  proceedings  of  organization. 

§  22.  Who  can  form  a  bank. 

Any  person  who  can  legally  enter  into  a  binding  and  lawful 
contract,  which  cannot  subsequently  be  repudiated  by  him,  can 
be  an  incorporator  of  a  bank.    Infants,  persons  under  age,  may 

[30] 


CH.  v.]  Banking.  31 

enter  into  contracts;  bnt  having  the  power  to  repudiate  the 
same  upon  arriving  at  the  age  of  maturity,  should  not  be  per- 
mitted to  become  incorporators  of  a  bank, 

§  23.  Married  women  as  incorporators. 

There  is  nothing  in  the  statute  prohibiting,  in  direct  lan- 
guage, a  married  woman  from  becoming  an  incorporator  of  a 
national  bank.  The  law  of  the  State  in  which  she  resides,  and 
where  the  bank  is  to  be  put  in  operation,  may  place  some  in- 
hibition upon  her  rights,  and  operate  as  an  estoppel;  but  if 
the  law  of  the  State  in  which  she  resides  authorizes  her  to 
make  contracts,  and  places  her  in  a  position  to  bind  herself 
to  all  liabilities  and  obligations  of  a  stockholder,  she  is  clothed 
with  full  power  to  become  an  incoiporator ;  but  inasmuch  as 
the  laws  of  the  several  States  differ  as  to  the  rights  of  a  mar- 
ried woman  in  regard  to  her  separate  estate  and  property,  and 
as  to  the  effect  of  covenants  and  agreements  made  by  her  as 
well  as  to  the  form  of  acknowledgment  of  instruments  exe- 
cuted by  her,  all  organization  papers,  required  in  the  forma- 
tion of  a  bank,  bearing  her  signature,  must  be  accompanied 
by  a  copy  of  the  law  of  the  State,  which  certifies  that  she  has 
the  power  to  be  a  party  to  the  organization. 

It  has  never  been  contended  that  women  are  not  "  natural 
persons,"  but  it  is  interesting  to  know  that  the  question  has 
frequently  been  before  the  courts. 

The  Supreme  Court  of  the  State  of  Massachusetts,  in  the 
opinion  of  the  justices  of  the  Governor  and  Council,  where 
the  statute  authorized  the  Government  to  appoint  nine  persons, 
etc.,  as  a  board  of  health,  had  occasion  to  express  its  opinion 
that  the  word  "  persons  "  in  its  natural  and  usual  signification, 
included  women  as  well  as  men.^ 

Where  also  the  word  "  person  "  was  used  in  a  legislative  act, 
"  natural  persons  "  will  be  intended.^ 

The  articles  of  association,  organization  certificate,  and  cer- 
tificate of  ofiicers  and  directors  must  be  executed  in  duplicate, 
one  copy  of  each  being  filed  in  the  office  of  the  Comptroller 
of  the  Currency,  and  the  other  retained  by  the  bank.  The 
organization  certificate  must  be  acknowledged  before  a  judge 
of  a  court  of  record,  or  before  a  notary  public  having  a  seal. 

iMass.  Rep.   136,  p.  58.  2  Blair  v.  Worley,  2  111.  177. 


32  The  Okgaxizatiox  of  Baxks,  Etc.  [cii.  v. 

After  the  execution  of  the  organization  certificate,  where 
the  directors  are  not  designated  in  the  articles  of  association, 
the  shareholders  should  proceed  to  elect  directors  as  provided 
in  section  5145,  Revised  Statutes  of  United  States.  After  elec- 
tion, each  director  is  required  to  take  the  oath  of  office,  which 
form  of  oath  will  be  furnished  on  application  to  the  Comp- 
troller of  the  Currency.  (For  form,  see  Appendix.)  A  person, 
to  be  elegible  as  a  director,  must  be  a  citizen  of  the  United 
States,  and  own  in  his  own  right  at  least  ten  shares  of  the 
capital  stock  of  the  bank,  such  stock  not  to  be  hypothecated, 
or  in  any  way  pledged  as  security  for  a  loan  or  debt. 

Three-fourths  of  the  directors  must  have  resided  in  the  State, 
territory,  or  district  in  which  the  association  is  located,  for  a 
year  or  more  immediately  preceding. their  election,  and  must 
be  residents  therein  during  their  continuance  in  office. 

All  the  preliminary  steps  having  been  taken  by  the  board 
of  directors,  and  the  officers  of  the  association  having  been 
chosen,  and  by-laws  duly  adopted  according  to  law,  and  the 
certificate  of  authority  issued  by  the  Comptroller  of  the  Cur- 
rency, authorizing  the  bank  to  begin  business,  the  certificate 
having  been  published  according  to  the  requirements  of  law, 
and  forwarded  to  the  Comptroller,  the  organization  becomes  a 
banking  corporation  from  the  date  of  the  issuing  of  said 
certificate. 

Organization  of  State  hauls. 

The  Constitutions  of  the  A-arious  States,  and  the  statutory 
laws  enacted  therein,  control  the  right  of  banking  within  the 
State.  A  State  banking  corporation,  unless  special  provisions 
are  made  providing  how  it  shall  be  incorporated,  can  be  incor- 
porated only  under  the  general  incorporation  laws  of  the  State 
authorizing  the  formation  of  corporations. 

Articles  of  incorporation  are  prepared  setting  out  the  name 
of  the  corporation,  the  purpose  for  which  it  is  formed,  the 
place  where  its  principal  business  is  to  be  transacted,  the 
term  for  which  it  is  to  exist,  the  number  of  directors  which 
the  corporation  shall  have,  the  amount  of  the  capital  stock, 
and  the  amount  actually  subscribed,  and  by  whom.  These  pro- 
visions mav  varv  in  the  different  States. 


CH.  v.]  Baxkixg.  33 

The  bank  must  have  a  name;  and  if  the  name  selected  in- 
fringes upon  the  right  of  a  bank  previously  incorporated,  the 
Secretary  of  State  should  refuse  to  grant  or  issue  the  articles. 
It  is  well  settled  that  where  a  corporation  attempts  to  obtain 
or  use  a  name  which  has  been  granted  to  another,  and  under 
which  a  large  business  has  been  built  up,  the  courts  are  fre- 
quently called  upon  to  prevent  one  corporation  from  using 
the  name  of  another,  and  in  some  of  the  States  the  statute 
especially  forbids  a  corporation  from  using  the  name  or  a 
similar  name  of  a  friendly  corporation. 

Where  the  statute  of  a  State  permits  a  corporation  to  have 
more  than  one  place  in  the  State  where  it  may  conduct  busi- 
ness, a  State  bank  may  establish  branches  therein. 

It  is  held  by  the  Supreme  Court  of  the  State  of  Michigan 
that  a  bank  located  in  one  county,  and  having  its  principal 
place  of  business  fixed  by  its  charter,  violates  the  same  by  es- 
tablishing an  agency  in  another  county,  where  it  receives  de- 
posits, sells  exchange,  and  conducts  a  general  banking  business. 

§  24.  Term  of  existence. 

The  law  provides  that  the  articles  of  incorporation  shall  fix 
the  term  or  life  of  the  corporation.  The  time  must  be  fixed, 
and  a  charter  cannot  be  obtained  for  a  longer  term  than  that 
fixed  by  the  law. 

It  must  also,  when  incorporated,  and  where  required  by 
the  statute,  show  the  amount  of  capital  stock  actually  paid  in. 
The  statute  regulating  national  banks  provides  when  and  how" 
the  capital  shall  be  paid.^ 

§  25.  Purpose  of  corporation. 

The  articles  must  also  set  out  the  purpose  of  the  corpora- 
tion. This  is  obvious,  especially  where  the  Constitution  of 
the  State  prohibits  a  corporation  from  performing  any  busi- 
ness other  than  that  for  which  it  is  incorporated.  For  ex- 
ample, a  bank  incorporated  to  conduct  a  general  commercial 
banking  business  should  not  be  permitted  under  a  commercial 
charter  to  conduct  a  savings  bank  business,  a  dry  goods  busi- 
ness, or  a  real  estate  business.  This  question  is  more  fully 
discussed   under   a   subsequent    chapter   upon   the    powers    of 

banks. 

3§  5140  R.  S.  U.  S. 
3 


3-i  The  Obga^izatiox  of  Bax'ks,  Etc.  [cii.  v. 

§  26.  Location. 

It  niu;«t  also  have  a  place  wliere  its  principal  business  is  to 
be  transacted.  The  Xational  Banking  Act,  section  5190,  Re- 
vised Statutes,  United  States,  provides  that  the  usual  busi- 
ness of  the  bank  shall  be  transacted  at  an  office  or  banking 
house  located  in  the  place  specified  in  its  organization  cer- 
tificate. The  question  as  to  whether  a  national  bank  can 
have  a  branch  office  in  the  same  tO"s\Ti  is  discussed  (see  organiza- 
tion of  branch  banks).* 

§  27.  Capital  required. 

The  statute  of  each  State  must  be  complied  Avitli  as  to  the 
amount  of  the  capital  required  to  be  paid  wj),  and  whether  it 
shall  be  paid  in  money  or  otherwise. 

In  Pacific  Trust  Co.  v.  Dorsey,  72  Cal.  55,  the  court  holds 
that  a  promissory  note  given  cannot  be  received  as  cash  or  as 
capital  paid  up.    The  court  says: 

"  The  defendant's  note  Avas  actually  received  by  the  cor- 
poration, and  was  a  thing  in  action  or  e'vidence  of  debt.  The 
first  section  of  the  act  concerning  corporations,  and  persons 
engaged  in  the  business  of  banking  'required  every  corporation, 
and  all  persons  doing  a  banking  business  in  this  State,  in  Janu- 
ary and  July  of  every  year,  to  publish  and  file  for  record  a 
sworn  statement  of  the  amount  of  capital  actually  paid  into 
such  corporation,  or  into  said  banking  business;  provided  that 
nothing  shall  be  deemed  capital  actually  paid  in,  except  money 
bona  fide  paid  into  the  Treasury  of  such  bank;  and  under  no 
circumstance  shall  the  promissory  note,  check  or  other  obliga- 
tion of  any  director  or  stockholder,  or  of  the  propnetors  or 
proprietor  of  any  such  bank,  be  treated,  computed,  or  in  any 
manner  considered  any  part  of  such  actually  paid-in  capital.' 

"  Under  this  statute  defendant's  note  could  not  be  adver- 
tised to  the  world,  or  treated  as  a  part  of  the  paid-up  capi- 
tal of  the  bank." 

§  28.  Requirements  of  law  essential. 

The  process  of  creating  a  corporation  being  an  artificial 
one,  all  the  requirements  contained  in  the  general  law  are 
held  to  be  essential.^. 

•4  Mershants'   Nat.    Bank   i.   Stale       strong    r.     Second     Nat.     Bank    of 
Nat.  Bank.   10  Wall.  604,  Burton   v.       Sprinofiehl,  .38   Fed.   Rep.   88.3. 
Burlej',    9    Biss.    U.    S.    253;    Arm-  5  Doyle   v.  Mizner,   42   Mich.   0S2. 


CH.  v.]  BANKI]SfG.  35 

In  the  case  of  Martin  v.  Deetz,  102  Cal.  55,  the  court  says: 
"  As  to  the  necessity  of  filing  the  articles  with  the  proper 
county  clerk,  the  law  as  deduced  from  the  authorities  cited  is 
thus  stated  in  Morawetz  on  Corporations,  section  27:  'A  sub- 
stantial compliance  with  all  the  terms  of  a  general  corporation 
law  is  a  pre-requisite  of  the  right  of  forming  a  corporation 
imder  it.  Thus,  where  it  is  provided  that  a  certificate  or 
articles  of  association,  setting  forth  the  purposes  of  the  cor- 
poration about  to  be  formed,  the  amount  of  its  capital  and 
other  details,  shall  he  filed  vitli  some  public  o-fficer,  and  per- 
formance of  this  requirement  is  essential;  and  until  it  has 
been  performed  the  association  will  have  no  right  whatever 
to  assume  corporate  franchises.'  And  again,  the  same  author 
says:  'In  order  to  prove  the  existence  of  a  corporation  de 
jure,  i.  e.,  a  corporation  having  a  legal  right  to  exist,  it  is 
necessary  to  prove  not  only  the  existence  of  a  corporation 
de  facto,  but  also  the  legislative  authorization  of  its  existence. 
A  public  law  authorizing  the  formation  of  a  corporation  will 
be  judicially  recognized  without  proof;  but  proof  would  be 
necessary  to  establish  that  the  corporation  was  formed  pur- 
suant to  the  law,  and  that  any  conditions  precedent  to  the 
legal  right  of  forming  the  corporation  have  been  fulfilled.'  " 
It  is  held  in  the  ease  of  Mokelumne  Hill  ]\Iin.  Co.  v.  "Wood- 
bury, 73  Am.  Dec.  658,  that  the  filing  of  a  certified  copy  of 
articles  of  incorporation  with  the  Secretary  of  State  is  not 
necessary  in  order  to  acquire  a  corporate  existence  for  cer- 
tain purposes.  When  the  articles  are  filed  with  the  County 
Clerk,  as  far  as  indi\aduals  are  concerned,  the  corporation  ac- 
quires a  valid  legal  existence.  The  filing  of  a  certified  copy 
\\\X\\  the  Secretary  of  State  is  exclusively  a  matter  between 
the  corporation  and  the  State,  for  which  the  latter  alone  has 
a  remedy  by  direct  proceeding. 

^  29.  Org^anization,  when  complete. 

The  organization  of  a  bank  becomes  complete  when  the 
laws  have  been  complied  with ;  and  when  the  certificate  of 
authority  has  been  issued  by  the  proper  authority,  it  is  held 
by  the  Supreme  Court  of  the  United  States,  in  the  case  of 
Casey  v.  Galli,  94  U.  S.  673,  that  the  plea  of  nultiel  corpora- 
tion cannot  be  interposed  as  against  said  certificate,  the  court 
says: 


36  The  Okganizatiox  of  Banks,  Etc.  [cir.  v. 

"  The  plea  of  nultiel  corporation  cannot  be  interposed  as 
against  a  certificate  of  the  Comptroller  of  the  Currency  which 
has  been  issued  to  the  bank  by  him.  The  Comptroller  was 
clothed  "\\'ith  jurisdiction  to  decide  as  to  the  completeness  of 
the  organization,  and  his  certificate  is  conclusive  upon  the 
subject  for  all  purposes  of  this  litigation. 

"  It  has  the  same  effect,  and  for  the  same  reason,  as  his  de- 
termination and  order  with  respect  to  the  amount  to  be  col- 
lected from  each  stockholder  in  the  event  of  the  failure  of  the 
association.  Ko  question  can  be  raised  in  this  collateral  wav 
as  to  either. 

"In  Thatcher  v.  Bank,  19  Mich.  196,  it  was  held  that 
whether  there  was  any  defect  in  the  process  of  organization 
was  a  question  for  the  Comptroller  to  decide,  and  that  '  His 
certificate  of  compliance  with  the  Act  of  Congress  removes 
any  objection  which  might  othenvise  have  been  made  to  the 
evidence  upon  which  he  acted.'    In  this  we  concur." 

''Corporate  Existence:  A  grant  or  charter  may  be  pre- 
sumed from  long-continued  exercise  of  corporate  powers;  but 
to  give  rights  to  this  presumption,  the  acts  done  must  bear  the 
impress  of  corporate  acts;  must  be  such  as  corporations  are 
competent,  and  individuals  incompetent,  to  perform.  Green 
V.  Dennis,  16  Am.  Dec.  58:  and  a  charter  will  be  presumed 
to  exist  from  long  exercise  of  corporate  rights,  or  from  other 
circumstances;  Selma  &  T.  R.  R.  Co.  v.  Tipton,  39  Ind.  341. 
AVhere  a  corporation  has  gone  into  operation  and  rights  have 
been  acquired  under  it,  every  presumption  should  be  made 
in  favor  of  the  legality  of  its  existence:  Hagersto^^^l  T.  R. 
Co.  V.  Creeger,  9  Id.  551.  But  it  is  sufficiently  organized  to 
bind  subscription  to  the  capital  stock  when  the  parties  men- 
tioned in  the  charter  have,  in  pursuance  of  its  terms,  by 
written  articles  of  association  organized  themselves,  and  opened 
books  of  subscription. 

The  principal  case  is  cited  in  Harris  v.  McGregor,  29  Cal. 
125,  to  the  point  that  there  must  be  a  substantial  compliance 
with  all  the  requirements  of  the  statute  by  persons  seeking 
to  become  a  body  corporate,  but  the  coi*poration  can  be  con- 
sidered in  esse.  Consequently,  a  certificate  of  incorporation 
which  does  not  set  forth  the  name  of  the  city  or  town  or 
county  in  which  the  principal  place  of  business  of  the  corpora- 


CH.  v.]  Banking.  37 

tion  is  to  be  located  does  not  establish  the  existence  of  a 
tcrporation.  It  is  also  cited  in  Spring  Valley  W.  W.  v.  S.  F., 
22  Cal.  434,  to  the  point  that  the  failnre  to  file  a  duplicate 
of  the  articles  of  association  with  the  Secretary  of  State,  is 
not  a  fatal  defect."  ^ 

Tlie  process  of  organization  being  complete  and  the  by- 
laws for  the  corporation  adopted  as  required  by  law,  the 
bank  becomes  a  lawful  institution  denominated  a  private  cor- 
poration, and  can  begin  business.  In  the  beginning  of  busi- 
ness its  very  first  act  may  be  contested,  and  the  question  of 
its  due  incorporation  and  power  to  act  be  brought  to  issue, 
and  in  such  event  proof  of  corporate  existence  is  required. 

§  30.  Organization  of  branch  banks. 

Under  national  authority,  a  national  banking  institution 
has  no  authority  to  establish  a  branch  banking  institution,  ex- 
cept by  special  provision  or  authority  from  Congress.  This 
authority  was  granted  at  Chicago,  Illinois,  during  the  World's 
Columbian  Exposition  to  any  national  bank  located  in  the 
city  of  Chicago,  which  might  be  designated  by  the  World's 
Columbian  Exposition.  The  branch  bank  was  restricted  by 
the  act  to  have  only  such  rights  as  the  bank  to  which  it  be- 
longed, and  limited  to  conduct  such  business  for  a  period  of 
two  years. 

The  question  of  privilege  in  the  establishment  of  a  branch 
bank  seems  to  be  settled  that  a  national  bank  has  no  right  to 
establish  branch  banks  A\'ithout  special  legislative  authority. 
The  ruling  is  upon  the  principle,  no  doubt,  that  the  bank  must 
have  a  location  or  place  where  all  its  business  is  to  be  trans- 
acted, and  branches,  especially  if  established  ouside  of  the 
city  or  town,  and  at  a  place  other  than  the  location  of  the 
mother  bank,  would  lead  to  conflict  as  to  where  notes  should 
be  protested,  and  payments  to  be  made.  But  where  State  banks, 
which  at  the  time  of  the  conversion  into  a  national  bank  have 
branches  established,  under  section  5155  Revised  Statutes, 
United  States,  may  maintain  such  branches.  But  where  such 
1>ranches  are  maintained  "  the  amount  of  the  circulation  re- 
deemable  at   the    mother   bank    and   each   branch    (is)    to   be 

c  Mokelumne   Hill   Mining   Co.   v.  Woodbury,  73  Am.  Dec.  658. 


38  The  Organization  of  Banks,  Etc.  [cir.  v. 

regulated  bv  the  amount  of  the  capital  assigned  to  and  used  bv 
each." 

In  the  case  of  Merchants'  Xational  Bank  v.  State  Xational 
Bank,  10  Wall,  60-1,  it  is  held  that  the  provisions  requiring 
"  the  usual  business  "  of  the  association  to  be  transacted  "  at 
an  office  or  banking  house  in  the  place  specified  in  its  organi- 
zation certificate  "  must  be  construed  reasonably,  and  a  part 
of  ilie  legitimate  business  of  the  association  which  cannot  be 
transacted  at  the  banking  house,  may  be  done  elsewhere.'^ 

The  Comptroller  of  the  Currency  in  his  report  of  1902, 
upon  the  question  or  right  of  a  national  bank  to  maintain  a 
branch  or  agencies  principally  for  the  reception  of  deposits 
elsewhere  than  at  its  banking  house  in  the  same  or  adjacent 
locality,  says: 

"  The  only  provision  of  law  relating  to  branch  banks,  is  the 
National  Bank  Act,  is  found  in  section  5155,  United  States 
Revised  Statutes,  and  reads  as  follows: 

It  shall  be  lawful  for  any  bank  or  banking  association,  or- 
ganized under  State  laws  and  having  branches,  the  capital  being 
joint  and  assigned  to  and  used  by  the  mother  bank  and  branches 
in  definite  proportions,  to  become  a  national  banking  association 
in  conformity  with  existing  laws,  and  to  retain  and  keep  in 
operation  its  branches,  or  such  one  or  more  of  them  as  it  may 
elect  to  retain.     *     *     * 

The  granting  of  this  special  privilege  to  State  banks  and  the 
absence  of  any  similar  provision  in  the  law  with  respect  to 
banks  of  primary  organization  have  always  been  construed  by 
the  Comptroller  to  imply  that  banks  of  the  latter  class  were 
not  permitted  to  have  branches.  The  section  cited  absolutely 
restricts  branch  banks  of  converted  associations  to  such  as 
have  a  definite  proportion  of  the  capital  of  the  parent  bank 
assigned  to  them,  and  it  is  not  to  be  assumed  that  the  law  con- 
templated that  associations  of  primary  organization  should  be 
permitted  to  assign  any  portion  of  their  capital  to  and  operate 
branches. 

This  fact  is  further  to  be  inferred  from  section  5138,  United 
States  Revised  Statutes,  which  prohibits  the  formation  of  asso- 

"  Burton      r.      Burley,      9      Biss.       883;     Bowman    v.     Cecil     Bank,    3 
(U.   S.)   253;   Annstronj?  r.   Second       Grant  Cas.  33. 
Nat.   Bank   of   Springfield,   38   Fed. 


CH.  v.]  Bai^kixg.  39 

ciatious  with  less  capital  than  $200,000  in  cities  of  population 
exceeding  50,000,  and  contains  similar  provision  with  respect 
to  banks  organized  in  places  with  less  population  than  50,000. 

To  permit  the  establishment  of  branch  banks  would  not  only 
render  possible  an  evasion  of  the  provisions  of  section  5138, 
but  tend  to  discourage  the  organization  of  banking  associations 
which,  in  the  absence  of  such  branches,  might  be  formed. 

Section  513-i  pro\ddes  in  part  that  the  organization  certificate 
of  a  national  bank  shall  show  "  the  place  where  its  operations 
of  discount  and  deposit  are  to  be  carried  on,"  and  section  5190 
that  "the  usual  business  of  each  national  banking  association 
shall  be  transacted  at  an  office  or  banking  house  (not  at  offices 
or  banking  houses)  located  in  the  place  (not  places)  specified 
in  its  organization  certificate." 

The  words  "  place  "  and  "  at  an  office  or  banking  house  " 
have  always  been  construed  by  the  Comptroller  to  mean  the 
legal  domicile  of  the  corporation,  of  which  it  can  have  but  one ; 
and  this  construction  is  sustained  by  the  Solicitor  of  the  Treas- 
ury in  an  opinion  rendered  August  10,  1899,  on  the  question  of 
the  right  of  a  national  bank  to  establish  and  maintain  an 
auxiliary  cash  room  at  some  point  distant  from  its  banking 
house,  for  the  purpose  of  receiving  deposits  and  paying  checks. 

The  Solicitor  says: 

This  section  (5190,  U.  S.  Rev.  Stat.)  contemplates  that  the 
usual  business  of  a  national  banking  association  shall  be  trans- 
acted at  one  office  and  banking  house,  and  as  receiving  deposits 
and  23aying  checks  belonging  to  the  "  usual  business  "  of  a  bank, 
I  am  of  the  opinion  that  the  statute  does  not  authorize  the 
establishment  of  an  auxiliary  cash  room  in  a  different  part  of 
the  city  for  the  purpose  proposed.  Besides,  it  may  be  observed 
that  if  a  national  banking  association  can  lawfully  establish 
and  maintain  a  separate  office  for  recei^ang  deposits  and  pay- 
ing checks,  it  could  as  well  establish  as  many  of  such  auxiliary 
cash  rooms  in  the  city  of  its  corporate  residence  as  its  business 
might  require;  and,  indeed,  the  entire  business  of  the  bank 
may  be  parceled  out  and  conducted  in  the  same  way  all  over 
the  city. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
Armstrong  v.  Second  National  Bank,  38  Fed.  Rep.  886,  in- 
volving, among  other  things,  the  question  of  the  right  of  a 


40  The  Organization  of  Banks,  Etc.  [gh.  v. 

national  bank  to  cash  a  check  elsewhere  than  at  its  banking 
house,  held  that: 

Under  this  section  (5190)  it  certainly  would  not  be  com- 
petent for  a  national  bank  to  provide  for  the  cashing  of  checks 
upon  it  at  any  other  place  than  at  its  office  or  banking  house. 

If,  therefore,  it  is  unlawful  for  a  national  bank  to  cash  a 
check  elsewhere  than  at  its  banking  house,  it  is  likewise  un- 
laAvful  for  it  to  discount  notes  or  to  receive  deposits  elsewhere, 
for  one  is  as  much  a  part  of  the  "  usual  business  "  of  a  bank 
as  the  other. 

While  it  is  obviously  impossible  for  a  bank  to  transact  its 
entire  business  within  the  four  walls  of  any  single  building,  it 
is  not  held  that  the  law  contemplates  that  the  ''  entire  business," 
as  distinguished  from  its  "  usual  business,"  shall  be  transacted 
iu  its  banking  house. 

In  the  case  of  The  Merchants'  National  Bank  v.  The  State 
National  Bank,  10  "Wall.  604,  it  was  held  in  this  connection 
that: 

The  provision  requiring  the  "  usual  business  "  of  the  asso- 
ciation to  be  transacted  "  at  an  office  or  banking  house  specified 
iu  its  organization  certificate  "  must  be  construed  reasonably, 
and  a  part  of  the  legitimate  business  of  the  association  which 
cannot  be  transacted  at  the  banking  house  may  be  done 
elsewhere. 

The  question  involved  in  this  case  was  the  right  of  the 
bank's  officers  to  purchase  gold  elsewhere  than  at  its  banking 
house,  and  the  court  held  that: 

The  gold  must  necessarily  have  been  bought,  if  at  all,  at 
the  buying  or  selling  bank,  or  at  some  third  locality.  The 
power  to  pay  was  vital  to  the  power  to  buy,  and  inseparable 
from  it. 

The  "  legitimate  business  "  of  a  bank,  therefore,  which  a 
reasonable  construction  of  the  law  would  permit  to  be  done 
elsewhere  than  at  its  banking  house  would  seem  to  be  restricted 
to  transactions  similar  in  character  to  that  involved  in  the 
decision  quoted,  and  not  the  ordinary  and  usual  business  of 
receiving  deposits  and  cashing  checks. 

The  argument  has  been  advanced  that  clearance  house  asso- 
ciations are  equivalent  to  branch  banks,  and  the  recognition 
by  the  National  Bank  Act  of  the  one  affords  warrant  for  the 


CH.  v.]  Banking.  41 

establishment  of  the  other ;  but  such  argument  has  no  apparent 
force,  as  the  two  institutions  are  entirely  dissimilar  in  char- 
acter and  purpose.  The  principal  object  of  the  former  is  tO' 
facilitate  exchange  and  to  adjust  balances  between  banks,  while 
that  of  the  latter  is  to  transact  the  usual  business  of  a  bank 
with  its  customers. 

While  .he  National  Bank  Act  does  not  in  express  terms  pro- 
hibit the  establishment  and  maintenance  of  branch  banks  or 
agencies  by  associations  of  primary  organizations,  the  implica- 
tion to  that  effect  is  clear,  and  the  courts  have  held  that  what 
is  implied  is  as  effective  as  that  which  is  expressed. 

That  the  act  does  not  contemplate  the  operation  of  branch 
banks  by  national  banks  of  primary  organization  is  evidenced 
by  the  fact  that  in  1892  a  special  act  was  approved  authorizing 
the  operation  of  a  branch  by  a  Chicago  national  bank  on  the 
World's  Fair  Grounds.  In  1901  similar  legislation  was  en- 
acted by  Congress  in  connection  with  the  Louisiana  Purchase 
Exposition,  to  be  held  in  1901. 

The  States  authorizing  branch  banks  or  agencies,  and  the 
regulations  and  provisions  of  law^  as  compiled  by  the  Comp- 
troller of  the  Currency,  are  as  follows: 

Alabama. —  Section  1089  of  the  Code  of  Alabama  (1896), 
relating  to  the  corporate  powers  of  banks  of  discount  and 
deposit  organized  in  the  State,  provides  in  part  that  they 
(banks)  *'  may  fix  and  locate  offices,  agents,  and  agencies  at 
places  in  the  State  other  than  the  principal  place  of  business." 

Arizona. — Branches  and  agencies  appear  to  be  authorized 
by  section  140,  title  1,  chapter  7,  of  Revised  Statutes,  and  also 
appear  as  one  of  the  corporate  powers.  Foreign  corporations 
must  file  certified  copy  of  articles  of  association  wilh  the  secre- 
tary of  the  State  or  Territory  and  county  recorder  of  the 
county  in  which  the  principal  office  is  located.  The  agent  must 
be  a  bona  fide  resident  of  the  county.  Branches:  The  Bank 
of  Arizona  (Prescott),  at  Jerome;  the  Arizona  Central  Bank 
(Flagstaff)^  at  Williams  and  Kingman;  the  Bank  of  Bisbee,  at 
Naco;  the  Gila  Valley  Bank  and  Trust  Company  (Solomon- 
ville),  at  Morenci  and  Clifton. 

Arkansas. —  Governor  states  that  "  we  have  no  banking  law^s 
in  this  State  other  than  general  banking  laws,  which  have  been 


42  The  Oegaxizatiox  of  JiA>"Ks,  Etc.  [en.  v. 

established  by  custom  and  the  law  merchant."  Operation  of 
branches   discretionary  with  board  of  directors. 

California. — Under  special  law,  but  covered  by  general 
agency  law.  The  right  of  a  bank  to  establish  agencies  has 
never  been  passed  upon  by  the  State  Supreme  Court.  It  is 
stated  that,  '*  The  law  may  permit  agencies  to  be  established 
within  the  county  by  the  parent  bank,  but  it  certainly  has  no 
authority  to  conduct  a  general  banking  business."  Foreign 
banking  corporations  have  the  right  to  establish  agencies  under 
the  law,  but  have  not  greater  corporate  privileges  than  accorded 
State  banks.  Branches  of  foreign  banks  in  operation  in  San 
Francisco:  Anglo-California  Bank,  Comptoir  JSTational  D'Es- 
compte  de  Paris,  London,  Paris,  and  iimerican  Bank,  Limited; 
Agency,  Bank  of  British  ]^orth  America,  Canadian  Bank  of 
Commerce,  Wells,  Fargo  and  Company's  Bank,  Liternational 
Banking  Corporation. 

Colorado. — Xo  law  authorizing  the  establishment  of 
branches   or  agencies. 

Connecticut. —  The  law  forbids  the  organization  of  any 
branch  or  agency,  or  the  employing  of  any  agent  or  person 
to  make  loans  at  any  other  place  than  the  banking  house. 

Delaware. —  Banking  privileges  are  not  granted  under 
General  Corporation  Law,  nor  are  foreign  corporations  allowed 
to  do  banking  business  in  the  State.  Banking  powers  in  the 
State  are  only  secured  by  special  act  of  the  Legislature,  in 
consequence  of  Avhich  each  State  banking  institution  is  gov- 
erned by  the  special  creative  act.  The  Farmers'  Bank  of  the 
State  of  Delaware  has  branches  at  AYilmington,  Dover,  and 
Georgetown.  The  Sussex  Trust  and  Safe  Deposit  Company  is 
operating  branches  at  Lewes,  Georgetown,  and  Milton. 

District  of  Columbia. — The  organization  of  banking  insti- 
tutions is  confined  to  national  banks  and  to  loan  and  trust 
companies,  under  the  act  of  October  1,  1890.  Branches  of 
national  banks  and  trust  companies  are  not  authorized.  There 
are  a  number  of  private  banks,  banking  firms,  and  branches 
of  savings  banks  doing  business  in  the  District  wdihout  license 
tax  to  the  District  government. 

Florida. —  Banks   are   permitted   to  conduct   branch   offices. 

Georgia. — Branches  or  agencies  are  not  authorized,  except 
in  the  charters  of  three  banks.     The  banks  referred  to  are  as 


cir.  v.]  Banking.  43 

follows  (location  of  branches  not  given):  Bank  of  South- 
western Georgia  at  Americus,  Farmers  and  Merchants'  Bank 
of  Senoia,  and  Oglethorpe  Savings  and  Trust  Company  of 
Savannah, 

Idaho. —  There  is  no  law  of  the  State  in  force  in  regard  to 
banks  or  banking  institutions  operating  branches  or  agencies. 

Illinois. —  Branches  are  not  authorized  bv  law. 

Indiana. — The  law  does  not  permit  the  operation  of  branches. 

Indian  Territory, —  Section  8  of  the  act  of  Congress,  ap- 
proved February  18,  1901,  provides  in  part  that  any  bank  or 
trust  company  now  or  hereafter  organized  under  the  laws  of 
Arkansas  or  any  other  State  may  transact  such  business  in  the 
Indian  Territory  as  is  authorized  by  its  charter  and  is  not 
inconsistent  with  the  laws  in  force  in  the  Indian  Territory. 

Iowa, —  Xeither  State  nor  savings  banks  organized  and 
transacting  business  under  the  present  laws  of  the  State  are 
authorized  to  establish  and  maintain  branches,  either  in  the 
town  or  city  where  the  banks  are  located  or  elsewhere.  The 
law  is  construed  as  placing  loan  and  trust  companies,  so  far  as 
their  right  to  establish  branches  is  concerned,  upon  the  same 
footing  as  State  and  savings  banks. 

Kansas. —  Xeither  branches  nor  agencies  provided  for  by 
law. 

Kentucky. —  An  examination  of  the  corporation  la^^^^  of  the 
State  indicates  that  there  is  no  law  authorizing  the  establish- 
ment of  branch  banks.  The  law  is  not  construed  as  prohibitive. 
Banks  operate  branches,  no  specific  information  being  sub- 
mitted, however. 

Louisiana. —  Article  179,  Act  1902,  allows,  on  the  approval 
of  two-thirds  of  the  stock,  the  establishment  of  two  branches, 
which  must  be  in  the  same  parish  as  the  parent  bank. 

Maine. —  There  is  no  general  provision  of  law  authorizing 
State  banks  to  establish  branches.  Trust  companies  created 
by  special  acts  of  the  Legislature  have  authority  in  their  char- 
ters to  establish  branches,  but  the  Legislature  of  1901  passed 
a  general  act  which  provides  that  no  trust  company  shall  es- 
tablish a  branch  or  agency  until  the  same  be  authorized  by  a 
special  act.  This  later  legislation  does  not  apply  to  trust  com- 
panies already  established  and  operating  branches.     The  State 


•i-i  The  Organization  of  Banks,  Etc.  [ch.  v. 

Banking  Department  exercises  supervising  power  over  branches 
in  conjunction  with  the  coi'poration. 

Trust  companies  having  branches:  Augusta  Trust  Company, 
at  Winthrop ;  Waten'ille  Trust  Company,  at  Corinna,  Dexter, 
Harthmd,  and  Xe^vport ;  Eastern  Trust  and  Banking  Com- 
pany of  Bangor,  at  Machias  and  Oldtown. 

Maryland. —  Xo  provision  for  the  operation  of  branches  by 
State  banks. 

Massachusetts. —  There  are  no  commercial  banks  other  than 
national  banks  and  trust  companies  in  operation  in  the  State. 

The  statute  relating  to  the  organization  of  banks  of  discount 
and  deposit  provides  that  they  shall  do  business  only  at  their 
banking  house.     This  prohibition  applies  to  savings  banks. 

By  an  act  passed  by  the  last  Legislature,  chapter  365,  section 
2,  the  board  of  commissioners  of  savings  banks  has  power  to 
authorize,  in  writing,  any  trust  company  to  maintain  a  branch 
office  in  the  city  or  town  in  which  its  main  office  is  located, 
for  the  purpose  of  receiving  deposits,  paying  checks,  and  trans- 
acting a  safe-deposit  business. 

The  Old  Colony  Company  and  the  State  Street  Trust  Com- 
pany of  Boston  have  branches  in  operation  m  that  city. 

Michigan. —  There  is  no  law  authorizing  the  establishment 
of  branches.  Agencies  are  permitted,  which  are  restricted  in 
their  operations  to  the  receiving  and  paying  out  of  deposits 
and  issuing  exchange.  Branches :  "  The  Home,"  "  The 
Dime,"  and  "  The  Peninsula  "  savings  banks  of  Detroit  op- 
erate two  branches  each  in  that  city.  '*  The  People's  Saving 
Bank  of  Detroit "  has  a  branch,  and  also  "  The  Lansing  Sav- 
ings Bank." 

Minnesota. —  Xo  branch  banking  or  branches,  or  any  other 
financial  institutions  organized  under  State  laws,  can  be  per- 
mitted :  nor  can  the  banks  of  any  other  State  establish  branches 
in  this  State. 

Mississippi. —  Branches  are  authorized  by  the  charters  of 
the  banks,  not  by  any  general  banking  law. 

Missouri. —  Specifically  prohibited  by  statutory  enactment. 

Montana. —  Neither  branches  nor  agencies  provided  for  by 
law. 

Nebraska. —  Neither  the  law  nor  the  charters  provide  for 
branches. 


CH.  v.]  Banking.  45 

!N^evada. —  Agents  of  foreign  corporations  doing  business 
within  the  State  must  comply  with  local  requirements  relating 
to  State  and  county  license.  Branches:  The  Bank  of  Cali- 
fornia, San  Francisco,  Cal.,  has  a  branch  at  Virginia  City, 
jSiev. ;  the  State  Bank  and  Trust  Company  of  Carson  City  has 
a  branch  at  Butler. 

Kew  Hampshire. —  Bank  Commissioner  states  that  there  h 
no  law  directly  authorizing  the  establishment  of  branches  or 
agencies,  but  that  he  is  not  aware  of  any  law  which  would 
prohibit  such  a  practice  within  certain  limits.  Xo  branches 
are  in  operation. 

ISTew  Jersey. —  The  laws  of  ]^ew  Jersey  are  the  most  liberal, 
with  respect  to  branches,  of  any  State  in  the  Union. 

Section  7  of  the  General  Coi^Doration  Act  of  1896  provides 
that  any  corporation  in  this  State  may  conduct  branches  in  any 
other  State  or  in  foreign  countries,  and  have  one  or  more 
offices  out  of  this  State ;  and  may  hold,  mortgage,  and  convey 
personal  property  out  of  such  State,  provided  notice  of  such 
object  is  included  in  its  certificate  of  incorporation.  In  1889 
an  act  was  passed  which  provided  that  no  corporation,  bank, 
etc.,  should  establish  or  maintain  any  branch  or  agency,  nor 
have  more  than  one  place  of  business  in  the  State  without  the 
approval  of  the  Board  of  Bank  Commissioners.  This  act, 
however,  was  repealed  in  1889.  Prior  thereto,  however,  The 
Asbury  Park  and  Ocean  Grove  Bank  had  established  a  branch 
at  Ocean  Grove,  and  The  People's  Bank  of  East  Orange  a 
branch  at  South  Orange. 

Xew  Mexico. —  The  law  has  been  held  to  prohibit  the  estab- 
lishment of  branches  or  agencies. 

Xew  York. —  Section  89  of  chapter  689  of  the  Laws  of  1882, 
as  amended  by  chapter  410  of  the  Laws  of  1898,  permits  a 
bank  located  in  a  city  of  over  1,000,000  inhabitants,  with  the 
approval,  in  writing,  of  the  Superintendent  of  Banks,  to  open 
and  keep  one  or  more  branch  offices  in  such  city  for  the  receipt 
and  payment  of  deposits  and  for  making  loans  and  discounts 
to  the  customers  of  such  branch  office,  only  providing  that  its 
certificate  of  incorporation  shall  so  provide.  ISTo  bank  in  this 
State  has  a  charter  which  originally  provided  for  branches ; 
but  a  number  of  banks  in  the  city  of  I^ew  York  have  amended 
their  charters  so  as  to  include  therein  such  provisions.     Section 


46  The  OROAXizATiOiS^  of  Banks,  Etc.  [cii.  v. 

89  referred  to  provides  in  part  that  "  before  opening  any  brancli 
ojffice  the  approval,  in  writing,  of  the  Superintendent  of  Banks 
shall  be  first  obtained,  and  no  discounts  shall  be  made  except 
such  as  have  been  previously  authorized  by  the  board  of  di- 
rectors." Penalty  for  violation  of  the  act  is  $1,000  for  every 
violation. 

The  Bank  of  Jamaica  (Long  Island)  has  branches  at  Elm- 
hurst,  College  Point,  and  Richmond  Ilill.  The  Brooklyn  Bank 
has  made  arrangements  for  an  oifice,  but  has  not  yet  opened. 
The  Corn  Exchange  Bank  has  twelve  branches  M-ithin  the 
corporate  limits  of  Greater  Xew  York.  The  Colonial  Bank  of 
Xew  York  has  five  branches.  Far  Rockaway  Beach  Bank  has 
a  branch  at  Rockaway  Beach.  The  Ilamiltotn  Bank,  The  Me- 
chanics' Bank,  the  Mechanics  and  Traders'  Bank,  The  Twelfth 
Ward  Bank,  The  Twenty-third  Ward  Bank,  The  Union  Bank, 
and  the  Coney  Island  and  Bath  Beach  Bank  have  each  a  branch 
in  Greater  Xew  York;  and  the  Xew  York  Produce  Exchange 
Bank  has  four  branches. 

Xorth  Carolina. —  There  is  no  general  law  authorizing  the 
establishment  of  branch  banks.  Most  of  the  banks  operate 
under  special  charters  granted  by  the  Legislature,  and  in  some 
instances  the  charters  granted  contain  authority  for  the  opera- 
tion of  branches. 

Xorth  Dakota. —  Branches  or  agencies  not  provided  for  by 
law. 

Ohio. —  Branches  are  not  authorized  by  law. 

Oregon. —  There  are  no  banking  laws  on  the  Oregon  statute 
books;  and  there  are,  consequently,  no  parent  or  branch  banks 
as  recognized  by  the  State  in  operation.  The  State  issues  no 
charters  to  banks  nor  has  it  on  its  statute  books  any  laws  per- 
taining to  the  operation  of  banks. 

Pennsylvania. —  Branches  or  agencies  of  banks  are  not  au- 
thorized by  the  laws  of  this  State.  One  savings  institution, 
in  conformity  \^^th  an  amendment  of  its  charter,  obtained 
from  the  Legislature  an  amendment  having  the  approval  of  the 
Court  of  Common  Pleas  of  the  county  in  which  the  institution 
is  located,  and  is  endeavoring  to  establish  a  branch,  but  the 
question  is  now  pending  before  the  State  Attorney-General. 

Rhode  Island. —  The  General  Laws,  chap.   171,  §  11,  pro- 


CH.  v.]  Banking.  47, 

hibit  the  establishment  of  branches  except  by  authority  of  the 
General  Assembly. 

South  Carolina. —  The  Code  of  1892  of  the  Banking  Laws 
of  State  contains  no  authority  for  the  establishment  and  opera- 
tion of  branches  by  State  banking  institutions. 

South  Dakota. —  Branches  or  agencies  not  provided  for  by 
law. 

Tennessee. —  Under  the  law,  branches  of  all  corporations 
are  permissible,  the  only  requirement  being  that  the  charter  be 
registered  in  the  register's  office  of  the  county  where  the 
branches  are  located.  The  law  governing  branches  is  the  same 
as  for  the  parent  bank,  and  the  branches  are  operated  in  all 
respects  as  the  parent  banks.  ISTo  information  submitted  as 
to  the  banks  operating  branches. 

Utah. —  Laws  of  the  State  do  not  authorize  corporate  banks 
to  conduct  branches  or  agencies  in  the  State.  One  private  bank 
(name  not  given)  has  a  branch. 

Vermont. —  Branches  or  agencies  are  not  authorized  by  the 
banking  laws,  nor  by  the  charter  of  any  bank. 

Virginia. —  Branches    permissible,    but    none    in    operation. 

West  Virginia. —  Each  bank  must  be  operated  under  special 
charter  in  an  independent  way.  State  banks  may  hold  stock 
in  other  banking  corporations. 

Wisconsin. —  Incorporated  banks  of  Wisconsin  cannot,  un- 
der the  law,  operate  branches,  except  possibly  in  the  large 
cities  where  the  branches  are  located  within  the  same  mu- 
nicipality as  the  parent  bank.  The  certificate  of  incorporation 
of  a  State  bank  must  specify  the  particular  city  or  tOAvn  where 
the  business  of  the  bank  is  to  be  carried  on.  Branches:  The 
Second  Ward  Savings  Bank  of  Milwaukee  operates  two 
branches ;  the  German- American  Bank  of  Milwaukee  also  op- 
erates a  branch. 

Wyoming. —  The  laws  do  not  contemplate  the  establishment 
of  branches  or  agencies. 

Where  the  statute  of  a  State  prohibits  a  banking  corpora- 
tion the  privilege  of  establishing  branches,  an  agency  cannot 
be  created.  But  where  the  statute  is  silent  upon  the  question, 
and  the  charter  permits  the  establishment  of  branches,  any 
number  of  branches  may  be  established  by  the  parent  bank, 


48  The  Okganizatios^  of  Banks,  Etc.  [ch.  v. 

and  they  may  conduct  business  as  agencies  of  the  parent  bank. 
But  if  the  charter  fails  to  provide  for  branches,  the  parent 
bank  cannot  establish  branches.  But  where  the  statute  of  a 
State  authorizes  corporations  which  are  formed  under  the 
general  laws  of  a  State  the  privilege  of  establishing  agencies 
or  branches  in  the  State,  a  banking  corporation  organized  and 
incorporated  under  such  a  general  law  may  establish  branches. 

A  corporation  has  only  such  powers  as  are  granted  to  it  by 
law,  and  it  cannot  establish  branches  in  the  State  where  this 
power  or  privilege  is  prohibited. 

It  is  held  in  the  case  of  People  v.  Oakland  County  Bank, 
1  Doug.  (Mich.)  282,  "where  by  its  charter  a  bank  is  located 
in  one  county,  and  it  establishes  an  agency  in  another  county 
where  it  receives  deposits  and  buys  and  sells  exchange,  it 
thereeby  violates  its  charter." 

The  court  further  says^  in  determining  this  case :  "  The  last, 
and  most  important  question,  remains  to  be  considered ;  and 
that  is,  whether  the  establishment  of  an  agency  in  the  city 
of  Detroit  was  a  violation  of  the  charter  of  the  defendants? 
By  the  act  of  the  incorporation  the  stockholders  were  author- 
ized to  locate  the  bank  in  the  county  of  Oakland.  It  follows, 
therefore,  that  if  the  corporation  has  undertaken  to  exercise 
any  of  its  franchise  ^\'ithout  that  county,  it  has  usurped  an 
authority  in  violation  of  law,  and  must  suffer  the  penalty  which 
that  law  inflicts.  The  case  admits  that  the  bank  redeemed  its 
bills,  kept  deposits,  and  as  incident  to  such  redemption,  bought 
and  sold  exchange  at  the  agency.  Did  these  acts,  or  either  of 
them  separately  considered,  violate  the  law  which  gave  a  legal 
existence  to  the  defendant?  To  determine  this  question,  it  is 
only  necessary  to  define  what  business  this  bank  was  authorized 
by  the  law  of  its  creation  to  do  and  perform.  Such  an  exam- 
ination ^^^ll  lead  to  the  conclusion  that  it  is  a  bank  not  simply 
of  discount,  but  also  of  deposit.  It  is  quite  manifest  that  the 
defendants  could  not  establish  in  this  city  an  office  of  discount. 
If  so,  may  it  not  equally  be  intended  that  they  cannot  establish 
an  office  of  deposit  ?  To  my  mind,  the  conclusion  is  irresistible. 
It  requires  no  profound  knowledge  of  the  mysteries  of  banking 
to  know  that  the  amount  of  discounts,  in  institutions  which 
profess  to  be  guided  by  safe  rules,  is  regulated  chiefly  by  two 
considerations:    First,  the  amount  of  actual  capital  paid  in, 


CH.  v.]  Banking.  49 

and  secondly,  tlie  amount  of  deposits.  If  banks  did  not  dis- 
count upon  the  strength  of  their  deposits,  their  profits  would 
be  greatly  diminished ;  and  the  discounts  predicated  upon  such 
deposits^  in  a  well-regulated  bank,  having  its  regular  customers, 
are  always  deemed  an  entirely  safe  operation.  But  it  is  un- 
necessary to  push  our  inquiries  any  further  upon  this  point, 
as  we  are  all  clearly  of  opinion  that,  in  this  respect,  there 
was  the  assumption  of  an  authority  not  warranted  by  law." 

The  subject  is  further  discussed  in  the  case  of  The  South- 
western National  Bank  v.  The  Commonwealth,  and  it  is  there 
held  that  depositing  money  with  another  bank,  for  the  redemp- 
tion of  notes,  is  not  the  establishing  of  an  agency. 

Therefore,  where  branches  are  authorized  by  law  they  are 
subject  only  to  such  powers  and  authority,  as  may  be  granted 
to  them  by  the  mother  bank.  They  cannot  exercise  original 
authority  which  is  not  delegated  to  them.  And  the  mother 
bank  has  authority  to  collect  and  enforce  the  payment  of  any 
and  all  debts  due  the  branch  bank.^^ 

"Where  branch  banks  are  authorized  to  be  established  in  the 
State^  it  is  not  necessary  to  incorporate  them.  The  mother 
bank  can  establish  the  branch,  using  the  name  obtained  by  the 
mother  bank  from  the  State.  But  in  doing  so  the  branch 
bank  must  be  designated  by  all  of  its  signs  as  such,  so  the 
general  public  may  have  the  full  knowledge  that  they  are 
dealing  with  the  agency. 

§  31.  Proof  of  corporate  existence. 

When  the  corporate  existence  of  a  bank  comes  directly  in 
question,  which  may  arise  when  the  State  brings  suit  through 
its  Attorney-General,  in  the  name  of  the  People  of  the  State, 
to  forfeit  its  Charter,  proof  of  performance  of  every  act 
required,  whether  by  general  law  or  special  charter,  must  b© 
made. 

In  collateral  proceedings,  being  those  where  the  corporate 
existence  is  denied  or  affirmed,  in  a  suit  between  the  bank  and 
any  party  other  than  the  State,  the  rule  is  held  to  be  different. 
The  fact  is  proved  by  putting  in  evidence  the  certificate  of 

Ta  Smith  V.  Lawson,  18  W.  Va.  212;  Bank  of  Augusta  v.  Earl,  13 
Peters,  519. 

4 


50 


The  Orgaxization  of  Baxks,  Etc. 


[CH.  V. 


incorporation.  The  corporate  minutes  proving  an  organization 
and  use  of  the  corporate  name  of  the  bank  in  business.® 

The  corporate  existence  of  a  plaintiff  in  ejectment  may  be 
established  by  evidence  that  it  was  a  corporation  de  facto.^ 

One  who  has.  dealt  vn\.\\  a  corporation  as  such  is  estopped  to 
deny  its  existence  by  demurrer.^*^ 

The  de  facto  incorporation  can  be  sho^vn  by  oral  evidence, 
that  is,  the  carrying  on  of  a  general  banking  business,  as  a 
bank  under  a  certain  name.^^ 

The  fact  of  incorporation  is  proved  by  putting  in  evidence 
the  certificate  of  incorporation.  The  corporate  minutes  proving 
an  organization  and  use  of  the  corporate  name  of  the  bank  in 
business,  etc.^^ 

The  fact  that  the  certificate  of  incorporation  of  a  national 
bank  is  signed  by  a  deputy  comptroller,  a  deputy  appointed  by 
the  Comptroller  of  the  United  States,  cannot  be  raised  as  an 
objection  to  its  introduction  in  evidence ;  nor,  that  at  the  date 
of  such  certificate  he  was  not  clothed  vnth.  authority  to  execute 
the  power.^' 

Where  the  laws  of  a  State  require  a  foreign  corporation  to 
file  within  a  certain  number  of  days  after  commencing  business 
within  the  State,  a  copy  of  their  articles  of  incorporation  with 
the  Secretary  of  State :  Held,  that  individuals  who  hold  them- 
selves out  as  a  corporation,  by  complying  with  the  requirements 
of  such  a  law,  will  not  be  permitted  to  deny  their  coi*porate 
existence  when  sued  by  persons  who  have  acted  in  good  faith 
upon  said  representations. 

The  Comptroller's  certificate,  together  with  proof  that  the 
bank  has  been  acting  as  a  bank  for  a  long  time,  is  sufficient 


8  Casey,  Receiver,  r.  Galli,  94  TJ 
S.  673;  Albert  v.  State,  65  Ind 
413;  Nicollet  Nat.  Bank  v.  City 
Bank.  38  Minn.  85;  Bullard  r 
Bank,  18  Wall.  589;  Tapley  r.  Mar 
tin,  116  Mass.  275;  Yakima  Nat 
Bank  r.  Knipe,  6  Wash.  348;  Aspin- 
wall  V.  Butler,  133  U.  S.  595;  Bank 
of  Manchester  r.  Allen,  11  Vt.  302 
Williams  r.  Union  Bank,  21  Tenn 
339;  McCormick  r.  Market  Nat 
Bank.  165  U.  S.  538;  Fresno  Canal 
&  Irri.  Co.  r.  Warner.  72  Cal.  379 


Soc,  70  Cal.   163;   McVicer  v.  Cone 
(Or),  28,  p.  76. 

9  Oakland  Gas  Light  Co.  r.  Cam- 
eron, 37  Cal.  663. 

10  Bank  of  Shasta  v.  Boyd,  99  Cal. 
604;  Cowell  v.  Springs  Co.,  100  U. 
S.  61;  Close  v.  Glenwood  Cem.,  107 
U.  S.  466. 

11  Yakima  Nat.  Bank  v.  Knipe,  6 
Wash.  348. 

12  Ignited  States  Bank  v.  Stearns, 
15  Wend.  314. 

i3Kevser  v.  Hitz,  133  U.  S.  138; 


McCallion    v.    Hibernia    Sav.    Loan      Aspinwall  v.  Butler,  133  U.  S.  595. 


en.  v.]  Baxking.  51 

evidence  to  establish  prima  facie  the  existence  of  the  corpora- 
tion of  a  national  bank.^* 

§  32.  Wlien  the  life  of  bank  corporation  commences. 

A  national  bank  becomes  a  corporation  from  the  date  of  its 
organization  certificate.^^ 

The  certificate  npon  receipt  thereof  must  be  published  ac- 
cording to  requirements  of  section  5170,  Revised  Statutes  of 
the  United  States. 

The  proof  of  publication  of  said  certificate  should  be 
promptly  sent  to  the  Comptroller  of  the  Currency. 

The  life  of  a  corporation  does  not  date  from  the  time  it 
begins  to  do  business,  but  from  the  date  of  its  organization.^^ 

"  Where  the  statute  points  out  the  manner  in  which  the  cor- 
poration shall  be  organized,  and  the  direction  of  the  statute  is 
followed,  this  brings  the  corporation  into  existence  so  that  it 
may  enter  upon  the  objects  of  its  creation."  ^^ 

14  Mix  V  Xat.  Bank  of  Blooming-  sity  13  Kan.  .320;  Hanna  r.  Interna- 

ton.    91    111.    20;    Merchants'    Nat.  tio'nal   Petroleum   Co.,    23   Ohio    St. 

Bank  i;.  Glenden.  120  Mass.  97.  622. 

15U,  S,  Rev.  Stat..  §§  5168,  5169.  n  i   Thomp.  on  Corp.   §  217,  and 

16  Whetstone    f.    Ottawa    Univer-  author  cited. 


CHAPTER  VI. 


BY-LAWS. 


§  33.  Power  to  make  inherent,  in  corporations. 

The  power  of  a  corporation  to  make  by-laws  is  inherent  in 
it.  One  of  the  important  features  of  a  corporation  is  the 
power  to  make  by-laws.-^ 

§  34.  By-law  defined. 

"A  by-law  is  a  permanent  rule  of  action  in  accordance  A\'ith 
which  the  corporate  affairs  are  to  be  conducted." 

A  by-law  is  also  said  to  be  a  rule  or  regulation  established 
by  a  corporation  for  the  government  of  its  officers  and  mem- 
bers in  the  management  of  the  affairs  of  the  corporation  as 
among  themselves.^ 

§  35.  Power  delegated  by  statute. 

Tlie  power  to  make  by-laws,  as  stated,  exists  at  common 
law  as  an  inherent  right  of  a  corporation.  The  power  may 
al&o  be  given  by  a  statute  or  by  the  charter  of  the  corpora- 
tion.^ 

§  36.  Who  has  power  to  make  by-laws  ? 

The  statute  fixes  and  vests  the  authority  usually  in  the 
stockholders.  Tlie  directors  have  no  power  to  make  by-la-\vs 
unless  the  statute  expressly  authorizes  it.'* 

The  stockholders,  however,  may  delegate  their  power  to 
the  board  of  directors.^ 

Where  the  charter  confers  the  power,  the  directors  are 
authorized  to  make  by-laws.*' 

Where  the  power  is  delegated  by  the  charter  to  the  directors, 

1  Cook  on  Corporations,  Vol.  1  4  North  ^Milwaukee,  etc.,  Co.  V. 
(.5th  erl),  §  4a.                                              Bishop,  103  Wis.  492;  Morton,  etc., 

2  1  Thomp.  on  Corp.  §  935;  Flint       Co.  r.  Wysong.  .51  Ind.  4. 

f.  Pierce.  99  Mass.  68.  5  Heintzolman  r.  Druids  Relief  As- 

3  People   V.  Crossley,   69   111.    195;  sociation,  38  Minn,  138. 
Kearney   v.  Andrews.   10  N.  J.  Eq.  6  Samuel  r.  Holladav,  ^^'ool\v.  400 
70:     .Inker    r.    Commonwealth,    20  ( 1869)  ;  S.  C.  21  Fed."  Cases,  306. 
Penn.  St.  484. 

[52] 


cii.  VI.]  Banking.  53 

a  bv-liiAv  made  by  the  stockholders,  it  is  held,  is  binding  as 
to  past  acts  on  participating  stockholders/ 

AVhere  a  charter  confers  the  power  upon  the  board  of 
directors  to  make  by-laws,  the  stockholders  are  bound  by 
their  action.^ 

§  37.  Where  statute  provides  purpose. 

Where  the  statute  provides  for  what  purpose  by-laws  may 
be  passed,  none  others  can  be  passed.'' 

Where  the  by-laws  are  .in  conflict  with  the  charter,  the 
latter  will  prevail.-^* 

§  38.  By-laws  must  be  reasonable. 

The  general  rule  is,  that  a  by-law  must  be  reasonable.  It 
must  not  interfere  "\Hth  "any  vested  right  of  the  stockholders. 
It  must  not  be  contrary  to  public  policy.  It  must  not  be 
contrary  to  the  established  law  of  the  land.  It  has  been  held, 
in  Burden  v.  Burden,  159  X.  Y.  287,  that  where  a  bank  by 
its  by-laws  places  the  management  exclusively  into  the  hands 
of  a  person  "  who  may  have  the  exclusive  charge  and  manage- 
ment of  the  business  of  the  Company,"  that  the  by-law  is' not 
void  as  a  whole,  and  until  the  general  manager  illegally  exer- 
cises power  the  courts  will  not  interfere  until  such  illegal 
acts  are  performed.  But  such  a  by-law  does  not  divest  the 
directors  of  a  duty  imposed  upon  them  by  law  to  perform. 

§  39.  When  a  by-law  becomes  a  law. 

A  by-law,  Avheii  enacted  in  accordance  with  the  charter 
and  statute  of  the  State,  is  binding  upon  the  individual  mem- 
bers from  the  date  of  passage;  and  when  required  to  be  en- 
tered in  a  book  of  by-laws,  it  becomes  a  law  when  so  entered. 

It  has  also  been  held  that  a  by-law  authorized  by  the  charter 
or  the  statute  and  not  in  ^^olation  of  any  constitutional  pro- 
vision or  law  of  the  State,  is  equally  binding  upon  third 
persons  dealing  with  the  corporation;  providing  they  are  made 
acquainted  with  the  same  and  the  business  of  the  corporation.^^ 

The  contrary  doctrine  is  found  in  the  case  of  The  State  v. 

^  People   V.  Sterling  Mfg.   Co.,  82  10  Republican      Mountain      Silver 

111.  457.  !Mines,  Ltd..  et  al.  r.  Brown  et  al., 

8  Cahill  V.  Kalamazoo  Mutual  Ins.       58  Fed.  Rep.  644. 

Co.,  2  Doug.    (Mich.)    124.  n  Cummings  V.  Webster,  43  Me. 

9  Ireland   r.    Globe,   etc.,    Co.,    19       192-197. 
R.  I.  180. 


54  By-Laws.  [ch.  vi. 

Overton,  24  K  J.  Law,  435,  where  the  Court  savs  "All 
regulations  of  the  company  affecting  its  business,  "which  do 
not  operate  upon  third  persons  nor  in  any  way  affect  their 
rights,  are  properly  denominated  '  by-laws  of  the  comj^any,' 
and  may  come  within  the  operation  of  the  principal." 

The  court  further  says:  "  The  validity  of  the  by-laws  of  a 
corporation  is  purely  a  question  of  law.  Whether  the  by-law 
be  in  conflict  ^^dth  the  law  or  with  the  charter  of  the  company, 
or  be  in  a  legal  sense  unreasonable,  is  a  question  for  the 
court  and  not  for  the  jury." 

The  rule  may  be  correctly  laid  down  as  follows:  Third 
persons  are  hound  hij  the  hy-Iaws  of  a  corporation  only  where 
they  have  knowledge  of  them  and  are  brought  into  privity  with 
them,  and  where  they  operate  as  a  contract  between  the  cor- 
poration and  such  persons. 

§  40.  By-law  must  be  proved. 

By-laws  and  ordinances  of  a  corporation  are  not  judicially 
noticed,  but  must  be  proved  as  facts.  The  courts  wdll  not 
take  judicial  notice  of  a  code  of  by-laws. ^^ 

A  by-law  must  be  pleaded.  The  pleader  may  set  it  out  in 
full  or  it  may  be  stated  in  substance  according  to  its  legal 
effect.  "When  the  latter  course  is  pursued,  the  by-law  itself 
may  be  introduced  as  evidence  under  the  pleading. 

§  41.  Actions  upon  by-laws. 

In  the  case  of  Schrick  v.  St.  Louis  Mutual  House  Bldg.  Co., 
34  Mo.  423,  it  is  held  that  an  action  cannot"  be  maintained 
if  the  by-law  had  been  repealed  by  substitution  during  the 
membership  of  plaintiff  and  before  the  bringing  of  his  action. 

§  42.  By-law  void  —  which  waives  liability  of  stockholder. 

"  The  assets  of  a  corporation  being  a  trust  fiuid  for  its 
creditors,  and  the  indebtedness  of  shareholders  to  the  cor- 
poration for  their  shares  being  a  part  of  this  trust  fund,  a  by- 
law which  attempts  to  release  shareholders  from  the  obligation 
incurred  by  their  contract  of  subscription  or  by  their  know- 
ing acquisition  of  shares  which  have  not  been  fully  paid  up, 
by  allo-^ang  them  to  pay  a  percentage  of  what  is  due  in  respect 

12  Lucas  V.  San  Francisco,  7  Cal.  sane  Asylum,  13  N.  H.  532,  38  Am. 
463;   Haven  v.  New  Hampshire  In-       Dec.  512. 


CH.  VI.]  Banking.  -55 

of  their  shares  and  to  forfeit  their  shares  and  be  discharged 
from  the  obligation  of  paving  the  remainder,  is  void  as  to 
creditors  of  the  corporation."  ^^ 

In  the  case  of  Slee  v.  Bloom,  10  Am.  Dec.  273,  it  is  held, 
that  a  resolution  discharging  from  future  assessments  any 
stockholder  paying  50  per  cent,  on  his  shares,  is  valid  as  to 
consenting  creditors,  and  will  protect  such  stockholders  as  have 
complied  with  its  terms,  before  the  dissolution  of  the  cor- 
poration. 

In  the  case  of  "V\''ells  v.  Black,  117  Cal.  157,  where  the 
question  of  liability  of  stockholders  to  depositors  in  a  sav- 
ings bank  is  discussed,  and  where  a  by-law  adopted  was  not 
consistent  mth  the  constitution  and  laws  of  the  State,  and 
by  virtue  of  its  terms  attempted  to  release  from  liability  the 
stockholders  of  the  corporation:  held  to  be  void  and  of  no 
binding  force  upon  the  depositors. 

The  court  in  this  case,  in  defining  a  by-law,  says  that 
*^  By-laws  are  the  body  of  rules  laid  down  by  the  government 
of  a  corporation,  its  officers  and  stockholders,  in  the  conduct 
of  its  affairs." 

It  is  well  settled  that  a  by-law  cannot  be  enacted  by  a 
banking  corporation  having  capital  stock,  which  would  waive 
the  liability  of  the  stockholder  to  the  depositor.  However,  the 
depositor  can  enter  into  an  agreement  with  the  shareholders, 
waiving  the  constitutional  and  statutory  pro'^dsions  of  liability; 
but  such  an  agreement  when  entered  into  between  the  parties 
must  be  thoroughly  understood. 

Where  a  depositor  enters  into  such  an  agreement,  it  would 
be  binding  upon  the  parties.^* 

§43.  Lien  created  upon  shares  of  stock. 

A  lien  may  be  created  upon  the  stock  of  the  corporation 
for  dues  owing  by  the  stockholder  to  the  corporation,  if  pro- 
vided for  by  the  statute  or  by  the  charter  of  the  corporation. 
Cook  on  Corporations  says :  "  The  weight  of  authority  holds 
that  it  may  be  created  by  a  by-law."  The  following  States 
hold  that  a  lien  may  be  created  by  a  by-law:     Alabama,^* 

13  Cyclopedia  of  Law  and  Proce-  Sedgwick  on  Statutory  and  Consti- 
dure,  vol.  10,  p.  301.  tutional  Law,  111. 

14  French  r.  Teschemacher,  24  Cal.  15  Planters'  etc.,  Ins.  Co.  V.  Selma 
518;   Wells  v.  Black,  117  Cal.   161;  Sav.  Bank,  63  Ala.  585. 


56  By-Laws.  [cii.  vi. 

California/*^  Connecticut/'  lowa/^  Maine/^  Mississippi/*^ 
Missouri/^  ISTew  Hampshire/^  New  Jersey/^  Rhode  Island/* 
United  States.^ 

The  power  to  prescribe  by-laws  of  a  national  bank  is  vested 
in  its  board  of  directors ;  but  a  national  bank  cannot,  even  by 
provisions  framed  with  the  direct  view  to  that  effect,  in  its 
articles  of  association,  or  by  a  direct  by-law,  acquire  a  lien 
on  its  OAvn  shares  of  stock  held  by  persons  who  are  its  debtors.^" 

§  44.  Pailure  to  make  by-laws. 

"Where  the  statute  by  expressed  terms  confers  the  power 
upon  the  corporation  to  adopt  by-laws,  it  is  held  that  the  failure 
to  exercise  the  power  will  not  render  void  any  of  the  acts  of 
the  corporation  which  would  otherwise  be  valid.^^ 

§  45.  Reasonable  by-law. 

A  by-law  is  held  to  be  reasonable  which  requires  a  de- 
positor in  a  savings  bank  to  present  his  book  for  entry  of  the 
amount,  which  may  be  Avithdrawn ;  but  in  case  of  loss  of  such 
book,  and  proof  thereof  duly  furnished  the  bank  of  such  loss, 
the  bank  cannot  refuse  to  pay. 

The  possession  of  a  pass-book  is  not  always  proof  of  owner- 
ship ;  and  a  by-law,  which  states  that  a  deposit  will  not  be  paid 
unless  the  pass-book  is  presented,  is  subject  to  criticism. 

A  by-law  printed  in  the  pass-book,  if  reasonable,  and  signed 
by  the  party  who  accepts  the  same,  Avill  bind  him  and  likewise 
the  bank ;  and  the  bank  cannot  revoke  nor  amend  such  a  by-law 

16  Jennings  v.  Bank  of  Californi.i,  by-law  reserving  lien  on  shares  for 
79  Cal.  .323,  21  Pac.  852,  12  Am.  St.  sharplioklcr's  indebteunes  to  the  cor- 
Rep.  14.5,  5  L.  R.  A.  233;  People  i\  poration  not  ^vithin  the  prohibition 
Crockett,  9  Cal.  113.  of    a    statute    forbidding    restraints 

17  Vansands  i\  Middlesex  County  upon  the  free  sale  of  shares.  Hill  V. 
Bank.  26  Conn.   144.  Pine  River  Bank,  4.5  N.  H.  300. 

18  Farmers',  etc..  Bank  r.  Wasson,  23  Young  v.  Vough,  23  N.  J.  Eq. 
48  Iowa,  330.  30  Am.  Rep.  398.  325. 

10  Batli    Sav.    Inst.    v.    Sagadahoc  24  Lockwood    r.    Mechanics'    Nat. 

Xat.  Bank.  89  Me.  500.  36  Atl.  99G.  Bank.  9  R.  I.  308,  II  Am.  Rep.  253. 

20Hollv  Springs  Bank   r.  Pinson,  25  Knight    V.   Old   Nat.    Bank,    14 

58  Miss.  421.  38  Am.  Rep.  330.  Fed.    Cas.    No.    7,88.5,    3   Cliff.    429: 

21  Spurlock   ;•.   Pacific   R.   Co..   61  Pendergast    l\    Stockton    Bank,    19 
Mo.   319:   Mechanics'   Bank  r.  Mer-  Fed.  Cas.  No.  10.918.  2  Sa^^7'.  108. 
chants'  Bank,  45  Mo.  513,  100  Am.  2G  Bullard  v.  Bank,  18  Wall.  589. 
Dec.    388.  27  Steger    r.    Davis,    8    Tex.    Civ. 

22  Costella    V.    Portsmouth    Brew-  App.  23,  27  S.  W.  IOCS, 
ing  Co.,  09  N.  H.  405,  43  Atl.  640; 


cii.  VI.]  Banking.  57 

so  as  to  affect  the  rights  of  such  depositor.     It  is  held  that 
such  a  by-law  becomes  a  part  of  the  contract  of  deposit.^® 

§  46.  Defining  duties  of  officers. 

The  officers  of  a  banking  corporation  have,  by  law,  certain 
implied  power;  and  in  the  absence  of  a  by-law  specifically 
defining  their  powers,  they  have  the  implied  power  to  manage 
and  conduct  the  business  of  the  corporation,  and  perform  all 
the  necessary  acts  other  than  those  which  are  imposed  by  the 
statute  to  be  performed  by  the  board  of  directors. 

The  by-laws  may  prescribe  in  detail  the  business  and  acts 
to  be  performed  by  the  various  officers  and  agents  of  the  bank. 
When  the  duties  and  acts  to  be  performed  are  defined  by  the 
by-laws,  and  they  contain  a  restrictive  provision,  in  effect  stat 
ing  that  all  acts  other  than  those  mentioned  are  proliibited, 
an  officer  or  agent  of  the  bank  has  no  additional  power  or 
authority  by  implication. 

Where  the  statute  of  a  State  prescribes  the  mode  of  em- 
ployment or  election  of  an  officer  or  agent  of  a  corporation,  it 
must  be  strictly  complied  with.  For  example:  Where  the  stat- 
ute says  that  the  officer  must  be  elected  by  the  board  of  di- 
rectors, and  it  prescribes  that  such  election  must  be  by  ballot, 
an  officer  of  the  corporation  cannot  be  appointed  by  a  vivi  voce 
vote,  or  by  a  resolution. 

Also  where  the  statute  prescribes  that  at  the  time  of  his 
election  he  must  be  a  bona  fide  director  of  the  corporation,  the 
directors  cannot  legalize  the  position  or  office,  unless  he  was 
at  the  time  a  director. 

§  47.  Amending  by-laws. 

The  power  to  amend  a  by-law  is  vested  in  the  persons  who 
are  empowered  to  make  a  by-law. 

Where  the  statute  of  a  State  prescribes  how  a  by-law  may 
be  amended  or  repealed,  it  must  be  strictly  followed. 

Where  a  provision  of  the  charter  is  made  a  part  of  the  by- 
law, such  a  provision  cannot  be  amended  by  amending  the 
by-law. 

A  provision  inserted  in  a  charter  cannot  be  amended  vnth- 
out  amending  the  articles  of  incorporation. 

28  Heath      v.      Portsmouth      Sav.       r.  Germania  Sav.   Bank,   127  N.  Y. 
Bank,  40  N.  H.  78 ;  Levy  v.  Franklin       488. 
Sav.  Bank,  117  Mass.  448;  Kummel 


58  By-Laws.  [cii.  vi. 

Directors  of  a  eoiporation  frequently  attempt  to  amend  the 
by-laws,  or  the  provisions  which  are  a  part  of  the  articles  of 
association ;  but  as  stated,  this  cannot  be  done  only  by  amend- 
ing the  articles.  *■ 

§  48.  Provisions  and  form  of  by-laws. 

Banking  corporations  incorporated  under  the  laws  of  a  State, 
in  adopting  and  preparing  a  form  of  by-laws,  should  be  very 
careful  in  the  preparation  of  the  same ;  as  a  by-law  cannot  be 
adopted,  or  enacted,  which  is  in  violation  of  a  law  of  the  State ; 
and  all  of  its  provisions  must  be  reasonable. 

For  form  of  by-laws  for  a  national  bank,  as  recommended 
by  the  Comptroller  of  the  Currency,  see  Appendix. 

§  49.  Statute  prescribing  time  in  which  by-laws  are  to  be 
adopted. 

The  certificate  from  the  Secretary  of  the  State,  which  is  a 
certification  implying  the  due  incorporation  of  a  bank,  in  it- 
self does  not  put  the  corporation  into  action  or  life. 

Where  a  bank  or  other  corporation  is  required  by  the 
statute  to  enact  a  code  of  by-laws  within  a  certain  number  of 
days  after  filing  the  articles  of  incorporation  with  the  proper 
officer  of  the  county,  where  required  to  be  filed,  such  a  statute 
is  not  mandatory  but  directory.^ 

The  failure  to  adopt  a  code  of  by-laws  within  such  period 
of  time,  though  a  statutory  provision,  will  not  prevent  the 
corporation,  after  the  adoption  of  by-laws,  from  thereafter 
doing  business  within  the  State. 

But  if  the  act  of  adopting  a  code  of  by-laws,  as  provided 
by  the  statute,  is  made  a  part  of  the  organization  of  the  cor- 
poration, the  organization  cannot  be  complete  until  all  the  re- 
quirements of  the  law  are  complied  with ;  and  contracts  made 
during  organization  are  held  to  be  invalid. 

An  agreement  made  by  a  cashier  of  a  national  bank,  prior 
to  its  organization,  does  not  bind  the  bank  unless  such  agree- 
ment is  ratified  after  the  organization  is  perfected  under  the 
National  Banking  Act.^° 

29Davies  v.  Smith,   58  N.  H.   16,  30  ]\TcDonough    r.    First    National 

and  cases  cited.  Bank  of  Houston,  34  Tox.  309. 


CHAPTER  VII. 


STOCKHOLDERS'  RIGHTS  AND  LIABILITIES. 

§  50.  Who  may  be  a  subscriber. 

Any  person,  male  or  female,  other  than  a  minor  (whose  con- 
tracts may  be  revoked)  may  be  a  subscriber  for  shares  of  stock 
in  a  corporation ;  provided,  however,  that  the  laws  of  the  State 
in  which  the  party  resides  and  the  contract  is  made,  and  to  be 
executed,  does  not  interfere. 

A  married  woman  may  become  a  stockholder  under  the  law 
of  the  State  where  the  contract  is  made,  if  not  prohibited,  and 
she  will  be  subject  to  all  the  liabilities  as  such.^ 

A  married  woman  in  the  District  of  Columbia  may  become 
a  holder  of  stock  in  a  national  banking  association,  and  as- 
sume all  the  liabilities  of  such  a  shareholder,  although  the 
consideration  may  have  proceeded  wholly  from  the  husband. 

The  coverture  of  a  married  woman  who  is  a  shareholder  in 
a  bank  w^ill  not  prevent  the  receiver  of  an  insolvent  bank 
from  recovering  judgment  against  her  for  the  amount  of  an 
assessment  levied  upon  the  shareholders  equally  and  ratably 
under  the  statute.^ 

In  the  case  of  Witters  v.  Sowles,  38  Fed.  Rep.  700,  the 
court,  in  discussing  the  contractual  character  of  the  relation  and 
the  liability,  says: 

"  Doubtless  it  would  be  competent  for  the  Legislature  to 
declare  that  any  married  woman  who  might  acquire  shares  in 
a  corporation  should  be  regarded  as  a  stockholder,  and  should 
be  liable  as  such,  not^^'ithstanding  her  shares  might  be  the  ab- 
solute property  of  the  husband  at  his  option ;  but  in  the  ab- 
sence of  language  to  that  effect,  a  statute  which  makes  share- 
holders liable  for  the  debts  of  the  corporation  must  be  pre- 
sumed to  include  only  persons  belonging  to  the  class  who  can 
contract  that  relation  toward  the  corporation  and  its  creditors. 

"  The    relation   is    a   contractual    one    and   the    liability   is 

1  Bnndy  r.  Cocke.   128  U.  S.   18.5.     2  Keyser  i'.  Hitz,  13.3  U.  S.  138. 

[59] 


60  Stockholders'  Rights  and  Liabilities,      [ch.  vii. 

mounded  on  tlie  presumed  assent  of  the  shareholder  to  be 
bound  by  the  terms  of  the  organic  law  of  the  corporation." 

This  is  well  stated  by  Allen^  J.,  in  Lowry  v.  Inman,  4G 
X.  Y.  125: 

*'A  personal  liability  of  stockliolders  for  the  debts  of  a  cor- 
poration, in  virtue  of  the  charter,  is  not  in  the  nature  of  a 
penalty  or  forfeiture,  and  does  not  exist  solely  as  a  liability 
imposed  by  statute.  It  is  not  enforced  simply  as  a  statutory, 
obligation,  but  is  regarded  as  voluntarily  assumed  by  the  act 
of  becoming  a  stockholder.  By  such  act  he  assents  to  be  bound, 
or  that  his  property  shall  be  charged,  with  the  debts  of  the 
corporation,  to  the  extent  and  in  the  manner  prescribed  by  the 
act  of  incorporation." 

The  Code  of  Xorth  Carolina,  §  1826,  enacted  in  1871,  pro- 
vides that  no  woman  during  coverture  shall  be  capable  of 
making  any  contract  to  affect  her  real  and  personal  estate  with- 
out the  written  consent  of  her  husband. 

The  court,  in  Robinson  v.  Turrentine  et  al.,  59  Fed.  Rep. 
554,  in  discussing  this  provision  of  the  Code,  and  the  question 
of  liability  and  the  rights  of  a  married  woman  purchasing  stock 
in  a  corporation,  A\dtliout  the  written  consent  of  her  husband, 
says: 

"  M.  B.  Turrentine  is  a  married  woman.  After  her  mar- 
riage and  after  the  passage  of  the  Act  of  1871  of  Xorth  Caro- 
lina (Code,  §  1826),  the  stock  in  question  was  transferred 
to  and  acquired  by  her,  to  use  the  language  of  her  answer. 
Her  husband,  the  other  defendant,  never  gave  his  written  con- 
sent to  the  purchase.  Mrs.  Turrentine  is  not  a  '  free  trader  ' 
under  Code,  §§  1828,  1831,  1832." 

The  court  then  proceeds  to  discuss  the  question  of  liability 
of  a  stockholder  as  created  by  section  5151,  Revised  Statutes, 
United  States,  imposing  individual  responsibility  to  the  amount 
of  the  par  value  of  the  shares  upon  stockholders  in  national 
banks,  which  law,  he  says,  makes  no  exceptions  in  favor  of 
married  women. 

The  court  further  says  that: 

"  To  hold  that  a  State  law,  were  there  such  a  law,  could 
except  certain  shares  from  the  liability,  would  enable  States 
to  defeat  the  policy  of  the  Federal  Government  in  establish- 
ing the  national  banking  system.    That  the  Congress  has  power 


cir.  VII.  J  Banking.  61 

to  establish  and  legislate  for  siicli  banks  has  not,  since  1819, 
been  an  open  question.  McCulloch  v.  Maryland,  4  Wheat. 
316.  If  a  purchase  of  stocks  in  a  national  bank  by  a  married 
woman  without  the  written  consent  of  her  husband  gives  her 
the  owTiership  of  such  stock,  judgnnent  must  be  given  against 
the  femme  defendant.  If  she  owned  the  stock  at  the  failure  of 
the  bank,  she  is  liable  to  the  assessment ;  if  she  did  not,  she  is 
not  liable.  While  the  Federal  Government  exclusively  con- 
trols the  question  of  the  liabilities  of  stockholders  in  national 
banks,  it  is  not  doubted  but  that  a  State  has  power  to  say  that, 
for  reasons  seeming  good  to  its  Legislature,  and  not  in  conflict 
with  organic  law,  a  particular  class  of  persons  shall  not  be 
permitted  to  own  particular  classes  of  property.  It  may  law- 
fully be  provided  that  a  guardian  or  other  trustee  may  not 
invest  in  securities  other  than  those  specified  by  statute.  Prob- 
ably it  might  be  held  that  a  statute  might  constitutionally 
provide  that  purchases  by  guardians  of,  say,  railroad  stock, 
in  the  name  of  their  trust,  should  be  absolutely  void.  In  such 
case  it  might  be  held  that  an  attempted  transfer  of  such  stock 
so  purchased  passed  no  title ;  that  the  stock  still  remained, 
although  duly  assigned  and  transferred  on  the  corporation 
books,  the  property  of  the  vendor ;  and  that  the  guardian  could 
recover  the  money  paid  from  the  vendor.  It  would,  I  think, 
require  strong  and  plain  words  to  induce  courts  to  give  such  a 
construction  to  an  act  of  the  Legislature." 

The  court  holds  that  the  Legislature  of  a  State  cannot  enact 
a  law  in  conflict  with  a  statute  of  the  L'nited  States. 

§  51.  Enforcement  of  subscription. 

A  subscription  to  the  capital  stock  of  a  proposed  corpora- 
tion, for  the  purpose  of  forming  it,  made  by  several  signers, 
is  valid.  The  corresponding  promise  of  the  other  signers,  and 
the  common  object  sought  to  be  accomplished,  constitute  a 
sufiicient  consideration  for  the  promise  of  each  signer,  and 
upon  the  formation  of  the  coiporation  and  its  acceptance,  each 
subscriber  becomes  liable. 

An  action  against  the  subscriber  to  stock  upon  his  subscrip- 
tion according  to  its  terms,  is  not  an  action  under  the  statute 
to  recover  assessments  upon  the  subscribed  capital  stock.^ 

3  The  Marysville  Electric  Light  &  Power  Co.,  appellant,  v.  F.  W.  John- 
son, responient,  93  Cal.  538. 


G2  Stockholders'  Rights  and  Liabilities,      [ch,  vii. 

A  contract  in  writing,  bv  which  the  subscribers  agree  to 
associate  themselves  into  a  corporation  for  a  specific  purpose, 
and  to  pay  to  the  treasurer  of  said  corporation  the  amount 
set  against  their  respective  names,  is  a  valid  subscription ;  and 
an  action  may  be  maintained  in  the  name  of  the  corporation, 
after  it  is  organized,  against  a  subscriber.'* 

The  court,  in  discussing  this  question,  says: 

"  In  agreements  of  this  nature,  entered  into  before  the 
organization  is  formed,  or  the  agent  constituted  to  receive  the 
amounts  subscribed,  the  difficulty  is  to  ascertain  the  promisee, 
in  whose  name  alone  suit  can  be  brought.  The  promise  of  each 
subscriber,  *  to  and  with  each  other,'  is  not  a  contract  capable 
of  being  enforced,  or  intended  to  operate  as  a  contract  to  be 
enforced  between  each  subscriber  and  each  other  who  may 
have  signed  previously,  or  who  should  sign  afterward,  nor 
between  each  subscriber  and  all  the  others  collectively  as 
individuals.  The  undertaking  is  inchoate  and  incomplete  as 
a  contract  until  the  contemplated  organization  is  effected,  or 
the  mutual  agent  constituted  to  represent  the  association  of 
individual  rights  in  accepting  and  acting  upon  the  proposi- 
tions offered  by  the  several  subscriptions.  When  thus  ac- 
cepted, the  promise  may  be  construed  to  have  legal  effect  ac- 
cording to  its  purjx)se  and  intent,  and  the  practical  neces- 
sity of  the  case ;  to  wit,  as  a  contract  with  the  common  repre- 
sentative of  the  several  associations." 

The  question  of  liability  of  a  subscriber  is  again  presented 
in  the  case  of  The  International  Fair  &  Exposition  Association 
of  Detroit  v.  Hiram  Walker,  83  Mich.  386;  and  a  subscriber 
who  signed  a  subscription  paper  (but  not  the  articles  of  as- 
sociation), which  subscription  paper  was  in  the  following 
form: 

"  For  the  purpose  of  purchasing  suitable  grounds,  erect- 
ing suitable  buildings  thereon  of  a  permanent  character  for 
fair  and  exposition  purposes,  to  be  upon  a  plan  similar  to  the 
Buffalo  Exposition,  and  believing  that  a  corporation,  with  a 
capital  stock  of  at  least  $250,000,  should  be  organized  for 
such  pur]>()se,  the  undersigned  agree  to  subscribe  for  and  take 
stock  in  such  a  corporation  for  such  purposes  to  the  amounts 

4Athol  Music  Hall  Co.  v.  Carey,  116  Mass.  471. 


CH.  VII.]  Baxkixg.  63 

set  opposite  our  respective  names:     Provided,  that  at  least  the 
sum  of  $100,000  shall  be  subscribed  within  sixty  days  from  the 
date  hereof,  in  order  to  render  our  agreement  hereto  binding. 
"  Dated  Detroit,  January  9,  1889." 

^Vas  held  liable. 

The  court  says: 

"  The  agreement  sets  out  fully  the  purposes  and  objects 
for  which  the  moneys  were  to  be  raised.  It  was  to  purchase 
grounds,  erect  suitable  permanent  buildings  thereon  for  fair 
and  exposition  purposes,  and  to  be  on  a  plan  similar  to  the 
Buffalo  Exposition.  Two  hundred  and  fifty  thousand  dol- 
lars, at  least,  was  to  be  the  amount  of  the  capital  stock ;  and  the 
only  limitation  or  condition  under  which  the  amount  sub- 
scribed by  each  should  not  be  paid  was  that  $100,000  should 
be  subscribed  within  sixty  days.  This  amount  was  subscribed 
within  the  time.  Tlie  other  parties  who  subscribed  went  for- 
ward in  good  faith  to  carry  out  the  plan  named  in  the  agree- 
ment, and  in  reliance  that  the  defendant  would  pay  in  the 
amount  of  his  subscription.  He  stood  by  and  saw  the  moneys 
being  expended,  the  ground  purchased,  and  buildings  erected. 
He  attended  a  meeting,  and  voted,  not  only  the  stock  of  his 
two  sons,  but  voted  his  own,  upon  the  question  of  the  site. 
This  subscription  was  accepted  by  the  plaintiff,  and  it  has  the 
power  to  give  the  stock  subscribed  for,  and  has  offered  to  do  so. 
I  think  this  case  falls  so  squarely  within  the  case  of  Peninsu- 
lar By.  Co.  V.  Duncan,  supra,  that  the  first  proposition  of  de- 
fendant's counsel  needs  no  discussion.  It  is  true  that  the 
statute  under  which  the  plaintiff  in  that  case  organized  did 
require  preliminary  subscriptions,  while  the  statute  in  the 
present  case  does  not;  but  here,  as  in  that  case,  the  promises 
to  pay  the  amount  subscribed  are  mutual,  and  the  agi-eement 
by  the  defendant  to  pay  the  $5,000  was  relied  upon  by  the 
other  subscribers,  and  between  them  it  was  a  valid  contract, 
upon  which,  after  organization,  the  corporation  could  main- 
tain an  action." 

Where  the  purposes  of  the  corporation  are  defined  in  the 
preliminary  subscription  paper,  which  paper  sets  out  the  pur- 
poses of  the  corporation,  and  after  being  signed  the  articles 
of   incorporation,    are   changed,    by    additional    or    new    busi- 


64  Stockholders'  Rights  a:nd  Liabilities,      [ch.  vii. 

ness,  the  subscriber  will  be  released.  Tlie  corporation  cannot 
recover  against  liim.^ 

A  subscriber  to  the  stock  of  a  corporation  may,  by  the 
terms  of  his  subscription,  vary  his  liability  to  calls  or  assess- 
ments from  that  imposed  by  the  statute.  The  liability  of  a 
subscriber,  in  such  a  case,  is  measured  by  the  terms  of  his 
agreement.'' 

A  subscription  cannot  be  avoided  where  the  subscriber  has 
partially  paid  for  his  stock,  upon  the  gi'ound  that  the  pur- 
poses of  the  corporation  have  been  changed,  and  differ  from 
those  stated  in  the  subscription  agreement.^ 

The  question  whether  an  action  can  he  brought  to  enforce 
a  subscription  to  stock  in  a  corporation,  before  the  corpora- 
tion is  organized,  is  not  presented  by  the  cases ;  but  if  an  agent 
is  named  in  the  subscription  paper  to  receive  the  amount 
from  each  subscriber,  for  the  benefit  of  the  corporation,  the 
assumption  is,  that  a  suit  may  be  instituted  before  the  organi- 
zation of  the  corporation  in  the  name  of  the  agent. ^ 

§  52.  What  constitutes  a  stockholder. 

The  issuing  of  the  stock,  coupled  with  delivery,  and  ac- 
ceptance, and  entry  o^  the  name  of  the  o^\^ler  on  the  stock 
books  of  the  corporation,  is  proof  conclusive  of  o^^^lership. 

A  subscription  to  stock  of  a  national  bank,  and  payment  in 
full  on  the  subscription  and  the  entry  of  the  subscriber's  name 
on  the  books  as  a  stockholder,  constitutes  the  subscriber  a 
stockholder;  though  the  certificate  is  not  issued  or  taken  out. 

The  Supreme  Court,  in  the  case  of  Tlie  Pacific  Xational 
Bank  V.  Eaton,  141  U.  S.  227,  holds,  that  where  a  party  who 
agrees  to  take  the  new  shares  of  stock  being  his  proportional 
share,  to  the  doubling  of  the  capital  stock  of  the  banking 
corporation,  and  paying  for  it  in  cash,  and  receiving  a  receipt 
for  the  same,  are  acts  which  are  fully  equivalent  to  a  sub- 
scription to  the  stock  in  writing. 

He  would  then  become  a  stockholder,  and  be  properly  en- 
tered as  such  on  the  stock  book  of  the  company,  and  his  certifi- 

5  ilarvsville     Electric     Light      &  7  Walter  r.  Merced  Academy  Asso- 

Power  Co.  r.  .Johnson,  109  Cal.  192.  ciation,  126  Cal.  582. 

©Ventura  and  Ojai  Valley  Ry.  Co.,  8  Athol  Music  Hall  Co.  v.  Carey, 

respondent,   r.   Hartman,   appellant,  116  Mass.  471. 
116  Cal.  260. 


CH.  VII.]  Bastking.  65 

cate  of  stock  being  made  out  ready  for  him  when  he  should 
call  for  it,  would  hold :     It  is  his  certificate. 

A  stockholder  is  one  who  is  (in  fact)  the  real  owner  of 
the  shares  and  is  liable  as  such,  though,  when  he  purchased  the 
stock,  he  had  it  transferred  upon  the  stock  books  to  another. 

A  purchaser  of  stock  in  a  national  bank  cannot  escape  indi- 
vidual resiDonsibility  bj  having  his  stock  transferred  to  a 
person  pecuniarily  irresponsible.'^ 

Where  stock  is  transferred  and  placed  upon  the  stock 
books  in  the  name  of  a  person  who  has  no  knowledge  of  such 
transaction,  which  has  been  done  without  his  authority  or  con- 
sent, this  does  not  constitute  him  an  owner  or  establish  lia- 
bility; but  wdiere  a  person  is  elected  a  director,  and  vice-presi- 
dent, of  a  bulking  corporation,  assuming  the  active  manage- 
ment of  the  bank,  being  bound  by  a  statute  to  own  a  certain 
number  of  shares,  and  presumed,  to  know  the  condition  of  the 
books  of  the  bank,  not  only  as  to  whether  the  required  number 
of  shares  are  held  by  him,  but  whether  there  are  the  re- 
quired number  of  stockholders,  and  who  they  are,  and  does  not 
return  a  dividend  paid  him  by  the  bank,  at  a  time  wdien  it  was 
insolvent,  upon  stock  transferred  to  him  without  his  knowd- 
edge  prior  to  his  election  as  director,  and  vice-president,  and 
does  not  repudiate  the  transfer  except  by  a  return  of  the  divi- 
dend to  the  supposed  owner  of  the  shares,  he  must  be  held  the 
owner  of  the  stock  thus  transferred  to  him  on  the  books.-^^ 

The  general  rule  is,  that,  unless  the  statute  otherwise  pro- 
vides in  expressed  terms,  "  It  is  not  essential  that  a  certificate 
should  have  issued  in  order  to  create  the  relation  of  share- 
holder, provided  a  contract  to  take  stock  had  been  duly  made, 
or  provided  the  rights,  privileges,  and  emoluments  of  a  share- 
holder had  been  enjoyed  with  the  consent  of  the  corpora- 
tion." 

The  authorities  supporting  this  rule  are  sufficiently  numer- 
ous to  establish  it  as  the  laAv.^^ 

It  is  held  in  Chafiin  v.  Cummings,  37  Me.  76,  that,  in 
order   to   constitute    a   stockholder,    it   is   not   necessary   that 

9  Davis  V.  Stevens,  17  Blatchford,  over,    114   Ind.   381,   16  N.   E.   042; 

259.  Chase  v.  Merrimac   Bank,   19   Pick. 

lOBro\Aii    V.    Finn,    34    Fed.   Rep.  (Mass.)  2G4.  31  Am.  Dec.  1G3 ;  Cliaf- 

124.  fin  r.  Cumniin<?s,  37  Me.  70 ;  Farrar 

11  Butler's    University    v.    Scoon-  v.  Walker,  8  Fed.  Cas.  No.  4679. 

5 


66  Stockiiolbees'  Rights  and  Liabilities,      [cii.  vii. 

such  fact  be  shown  by  the  corporation  records.  It  is  provable 
bv  paroL 

The  court  says,  "  To  constitute  ownership,  it  is  not  necessary 
that  the  stock  should  be  paid  for.  The  corporation  may  give 
credit  for  its  stock.  It  is  not  necessary  that  certificates  should 
be  issued.  They  only  constitute  proof  of  property  w^hicli  may 
exist  without  them." 

When  a  corporation  agrees  that  a  person  shall  be  entitled 
to  share  in  its  capital,  to  be  paid  for  in  a  manner  agreed  upon, 
which  person  has  agreed  to  take  any  pay  for  them  accordingly, 
the  latter  becomes  the  owner  by  valid  contract  made  upon  the 
valuable  considerations. 

The  court  further  says: 

"  It  is  insisted,  that  parol  evidence  cannot  be  received,  to 
prove  that  a  person  has  become  the  owner  of  shares;  that 
the  records  or  books  of  the  corporation  are  the  only  legal  evi- 
dence of  that  fact;  and  the  case  of  Stanley  v.  Stanley,  26  Me. 
191,  is  relied  upon  as  having  so  decided.  That  case  decided 
that  the  transfer  of  stock  from  one  person  to  another  is  by 
statute  required  to  be  entered  upon  the  books  of  the  corpora- 
tion, before  it  can  be  effectual  to  discharge  or  incur  certain 
liabilities,  and  that  the  transfer  can  be  proved  only  by  the 
books;  not  that  a  title  to  stock  originally  acquired  from  the 
corporation  should  be  so  proved. 

"  The  decision  upon  the  facts,  as  well  as  the  law,  being 
submitted,  the  court  cannot  but  conclude  that  the  testimony 
is  sufficient  to  prove  that  the  defendant  was  an  owner  of  ten 
shares  of  the  stock,  when  the  debts  on  which  the  judgment 
was  founded  were  contracted  by  the  corporation." 

§  53.  Purchase  and  transfer  of  stock. 

Stock  in  a  corporation  may  be  acquired  by  subscription,  by 
purchase,  by  gift,  or  under  a  judicial  sale  by  decree  of  the 
court. 

A  stockholder  acquiring  stock  has  an  unqualified  and  im- 
mediate right  to  have  the  stock  transferred  to  him,  upon  the 
books  of  the  corporation. 

The  entry  of  the  transfer  on  the  books,  constitutes  the  act, 
and  from  the  date  of  such  entry  the  bank  is  estopped  from 
setting  up  any  claim  or  lien  against  the  stock. 


CH.  VII.]  Banking.  67 

The  bank  may  refuse  to  enter  the  transfer,  if  it  has  a  law- 
ful claim  or  Ken  upon  the  stock,  or  if  it  has  been  enjoined  by 
a  court  of  competent  jurisdiction. 

The  endorsement  in  blank  by  the  owner  of  the  certificate 
entitles  the  holder  to  fill  in  the  blank,  and  presentation  of 
the  same  to  the  bank  demanding  that  an  entry  of  the  transfer 
be  made  upon  the  record,  and  a  new  certificate  issued,  es- 
tablishes his  right  as  a  stockholder  from  the  time  of  such  de- 
mand, though  the  bank  does  not  at  the  time  make  the  trans- 
fer or  issue  to  him  a  new  certificate. 

A  notice  given  to  the  bank  coupled  with  a  request  and  tender 
of  a  certificate  properly  indorsed,  demanding  a  transfer  of 
the  stock,  operates  as  a  release  of  the  stockholder  from  further 
liability. 

If  the  bank  refuses  to  enter  the  transfer  on  demand,  with- 
out sufficient  cause,  it  will  be  liable  for  damages  to  the  party 
injured. 

Where  a  certificate  of  stock,  by  the  conditions  set  out  on 
the  face  of  the  instrument,  is  made  transferable  only  on  the 
books  of  the  corporation,  the  title  as  between  the  parties  (the 
seller  and  the  purchaser),  passes  on  delivery  of  the  certificate: 
and  the  transfer  on  the  book  of  the  corporation  is  not  an 
essential  act  to  pass  the  title;  but  it  is  very  important  to  the 
parties  that  the  transfer  should  be  made  at  the  time  of  sale 
and  delivery,  in  order  that  the  exact  legal  liability  of  the 
parties  may  be  fixed. 

.  Where  the  certificate  provides  that  a  transfer  shall  take 
place  only  by  a  cancellation  of  the  certificate,  and  entry  on 
the  books  of  the  corporation,  until  such  entry  is  made  or 
notice  given  to  the  bank,  the  stock  may  be  attached,  in  the 
name  of  the  party  appearing  as  the  owner,  upon  the  books  of 
the  corporation. 

§  54.  Right  of  stockholder. 

Entitled  to  notice  of  meetings. 

Where  the  time  and  place  of  corporate  meeting  are  fixed 
by  the  charter,  or  the  by-laws,  this  is  held  to  be  sufficient  no- 
tice to  the  stockholders  and  no  further  notice  is  necessary  un- 
less the  charter  or  by-laws  require  it.^^ 

12  Warner  v.  Mower,  11  Vt.  385,  10-15;  Morrill  i\  Little  Falls  Mfg. 
396;  State  v.  Bonnell,  35  Ohio  State,       Co.,  53  Minn.  371. 


68  Stockkoldees'  Kights  and  Liabilities,      [cii.  vii. 

AVbere  no  sufficient  notice  is  given  by  charter,  or  bv  statute, 
or  by  a  by-law,  of  stockholders'  meetings,  they  are  entitled  to 
an  express  notice  of  every  such  corporate  meeting. -^^ 

§  55.  Notice  may  be  waived. 

A  stockholder  may  waive  his  right  to  have  a  notice  of  a 
corporate  meeting  served  upon  him. 

When  all  the  stockholders  are  present  or  subsequently  ap- 
prove of  and  ratify  an  action  of  the  corporation,  the  notice  is 
waived  and  the  action  becomes  valid. ^^ 

A  stockholder  admitting  the  validity  of  a  claim  against  the 
corporation,  which  claim  is  held  to  be  valid,  though  the  meet- 
ing was  not  called  in  accordance  with  the  statute,  it  not  ap- 
pearing that  any  stockholder  has  ever  objected,  the  meeting 
is  held  to  be  valid. ^^ 

All  who  appear  at  a  meeting,  wherever  held,  or  however  de- 
fectively the  members  are  notified,  will  be  bound  by  the  pro- 
ceedings of  those  who  appear  and  participate  in  it  without 
dissent.  ^^ 

§  56.  The  right  to  vote. 

The  general  rule  is  that  shareholders  who  are  registered  as. 
such  on  the  books  of  the  corporation  have  the  right  to  vote.^^ 

Corporation  cannot  vote  its  own  stocl'. 

A  corporation  holding  or  acquiring  its  own  stock  cannot  be 
voted  the  same  at  a  corporate  election.  The  statute  may  regu- 
late the  privilege.  ^^ 

Pledgee  cannot  vote  stoch. 

Where  stock  has  been  pledged  to  the  corporation,  or  some  one 
in  trust  for  the  corporation,  neither  the  bank  nor  the  trustee 
can  vote  the  stock.^^ 

i3Wigt?in    r.    Free    Will    Baptist  1   Pac.   15G;   j\rorrilI   r.  Little  Falls 

Church,  49  Mass.  .301.  Mfg.   Co.,   53   Minn.   371,  55  N.   W. 

14  Stutz  r.  Handley,  41  Fed.  Ticp.  547  ;  Matter  of  Glen  Salt  Co.,  153 
531;  Handley  v.  Stutz,  139  U.  S.  N.  Y.  088,  48  N.  E.  1104;  People  r. 
417.  Dcvin.  17  111.  84. 

15  Clark  V.  Warwick,  etc.,  174  is  McXeely  r.  Woodruff.  13  X.  J.  L. 
Mass.  434.  3.52;    Am.    Ily.    Co.    v.    Haven.    101 

ic  Handley    v.    Stutz,    139    U.    S.  Mass.  398,  3  Am.  Rep.  377. 
417;  P>enhon  v.  Cook,  115  N.  C.  324;  i!»  :Monsseaux  r.  Urquhart,  19  La. 

People  V.  Peck,  11  Wend.  604.  Ann.  482. 

17  People  V.  Robinson,  64  Cal.  373, 


cii.  VII.]  Banking.  69 

In  the  absence  of  a  statute  a  shareholder  who  is  delinquent 
upon  an  assessment  against  his  stock  does  not  lose  his  right  to 
vote.2^ 

§  57.  Eight  to  vote  by  proxy. 

The  right  to  vote  by  proxy  is  generally  a  right  authorized 
and  fixed  by  statute."^ 

A  non-resident  shareholder  cannot  vote  by  proxy  where  the 
right  to  vote  is  given  by  the  statute  to  citizen  shareholders.^ 

§  58.  Right  of  stockholder  to  inspect  records  of  corporation. 

The  right  to  examine,  at  a  proper  time  and  for  proper  pur- 
poses, the  records,  books  and  papers  of  a  corporation^  is  an 
incident  and  privilege  which  goes  with  the  ownei-ship  of  stock 
in  a  corporation.^^ 

Where  the  statute  grants  the  privilege  to  the  stockholder  to 
inspect  the  records,  the  motive  cannot  be  inquired  into.  The 
shareholder  need  not  give  any  reason  to  the  officers  for 
demanding  the  privilege.^^ 

The  right  to  make  an  examination  of  the  books  is  not  con- 
fined to  a  personal  inspection  by  the  stockholder  himself,  but 
may  be  made  by  his  agent,  attorney,  or  expert.^ 

20Kiman  v.  Sullivan  Co.  Club.  2G  681:  Grant  Corp.  311:  2  Phillips  Ev. 

N.  Y.  App.  213;   Price   v.  Holcomb,  313:     Eedfield     Ry.     227;     Lvon    r. 

89  Iowa,  123.  56  X.  W.  407;  U.  S.  American   Screw  Co.,   16  K  I.  472, 

v.  Barry.  36  Fed.  Rep.  246.  17   Atl.  61 :    State   v.   Pae.  Brewing, 

21  C.  C.  Cal..  §  303:  Market  St.  etc.,  Co.,  21  Wash.  4.51.  58  Pac.  584, 
Ry.  Co.  r.  Hellman,  107  Cal.  571,  47  L.  R.  A.  208;  U.  S.  Ranger  v. 
42  Pac.  225.  Champion  Cotton  Press  Co.,  51  Fed. 

22  C.   C.   Cal.,    §    326:    Graham  v.  61. 

Oviatt,  58  Cal.  428;  In  re  Barker,  6  24  Foster  r.  White,  86  Ala.  467; 

Wend.   (N.  Y.)   509.  State  i:  St.  Louis,  etc.,  Ry.  Co..  2!) 

23  Mathews  r.  McClaughry,  83  111.  Mo.  App.  301;  Mitchell  v.  Rubber 
App.  224;  Ellsworth  1-.  Dorwart,  95  Reclaiming  Co.  (C.  H.  1892).  24 
Iowa.  108.  63  X.  W.  588,  58  Am.  Atl.  407;  Cincinnati  Volksblatt  Co. 
St.  Rep.  427.  under  la.  Code,  §  r.  Hoffmeister,  62  Ohio  State  189, 
1279;  Legendre  r.  Xew  Orleans  56  X.  E.  1033,  78  Am.  St.  Rep.  707, 
Brewing  Assoc,  45  La.  Ann.  669,  Lyon  c.  Am.  Screw  Co.j  16  R.  I.  472. 
12  So.  837,  40  Am.  St.  Rep.  243;  25  Foster  r.  White,  86  Ala.  467; 
Cockbum  r.  L'nion  Bank,  13  La.  Ballin  v.  First,  55  Ga.  546 ;  Ellsworth 
Ann.  289:  In  re  Steinwav,  159  r.  Dorwart,  95  la.  108.  63  X.  W. 
X.  Y.  250.  53  X.  E.  1103,"^  45  L.  588,  58  Am.  St.  Rep.  427;  State  r. 
R.  A.  461,  affirming  31  N.  Y.  App.  Sportsman  Park  Ass'n,  29  Mo.  App. 

Div.  70.  52  X.  Y.  Suppl.  343:  Com-  .326;  People  v.  Xassau  Feny  Co.,  86 

monwealth  r.  Phoenix  Iron  Co..  105  Hun    128,   33   X.   Y.    Suppl.  244.  66 

Pa.  St.  111.  51  Am.  Rep.  184.  citing  X.  Y.  St.  801.     Contrary,  see  Clark 

State  r.  Bienville  Oil  Works,  28  La.  v.  Eastern  Bldg.,  etc.,  Ass'n,  80  Fed. 

Ann.    204;    Angell    &    A.    Corp.,    §  Rep.  779,  which  holds  that  a  corpo- 


TO  Stockholders'  Rights  and  Liabilities,      [cii.  vii. 

A  shareholder  who  is  not  registered  on  the  books  of  the 
corporation  has  no  right  to  make  an  examination  of  the 
records.^*^ 

§  59.  Liability  of  stockholder  to  creditors  of  corporation. 
General  rule. 

The  general  rule  at  common  law  is  that  shareholders  in  a 
joint  stock  corporation  are  not  liable  for  debts,  except  to  make 
good  the  amount  due  to  the  corporation  for  their  shares.^^ 

s;  60.  Liability  cannot  be  enlarged  by  a  by-law. 

Bv  unanimous  consent  the  liability  of  the  stockholder  may 
be  enlarged  beyond  the  liability  created  by  law,  but  such  a 
liability  must  be  unanimous.  A  by-law  or  resolution  of  the 
corporation  cannot  create  a  liability  beyond  that  fixed  by  the 
statute.-^ 

^61.  When   stockholder  liable  to   corporation,   liable   also   to 
creditors. 
General  rule. 

The  general  rule  is  that  a  stockholder,  if  not  liable  to  the 
corporation,  is  not  liable  to  a  creditor,  except  where  the  Con- 
stitution or  statute  of  the  State  otherwise  provides.^^ 

In  the  case  of  Potts  v.  Wallace,  32  Fed.  Eep.  272,  it  is  held 
that  where  a  subscriber  to  stock  tendered  the  amount  of  his 
subscription  to  the  corporation  while  it  was  solvent^  and  de- 
manded a  certificate  which  was  refused  him,  he  was  not  liable 
to  the  assignee  in  insolvency  of  the  corj)oration. 

§  62.  Liability  beyond  subscription. 

A  stockholder  has  no  liability  beyond  the  par  value  of  the 
stock  o^^^led  by  him,  unless  such  a  liability  is  created  by  the 
constitution,  the  statute,  charter,  or  by  contract. 

ration  will  not  be  required  to  permit  Rindge,  57  Fed.  Rep.  279;   Smith  r. 

an  examination  of  its  books  at  the  Londoner,  5  Colo.  36.5. 

request   of   stockholder   -who   alleges  28  Reid  v.  Eatonton  Mfg.  Co.,  40 

misconduct.  Ga.   98,   2   Am.   Rep.   563;    Flint    r. 

2GMatter  of  Reiss,  SOMisc.  (N.Y.)  Pierce,   99   Mass.   G8,    96   Am.   Dec. 

234;  62  X.  Y  Suppl.  145.  601. 

27  Toner    r.    Fulkerson.    125    Ind.  29  Deadwood  First  Nat.  Bk.  v.  Cus- 

224,  25  X.  E.  218:   Spense  r.  Iowa.  tin  Minerva  Con.  Min.  Co..  42  Minn, 

etc..  Constr.  Co.,  36  Iowa  407  ;  Wood  327,  44  N.  W.  198,  18  Am.  St.  Rep. 

r.    Pierce,   2   Disn.   411;    Jackson    v.  510;  Union  Sav.  Ass'n  r.  Seigelman, 

Meek.  87  Tenn.  09,  9  S.  \\ .  225,  10  92  Mo.  635,  15  S.  W.  6.30;  Burgess 

Am.  St'.  Rep.  620;  Bank  of  X.  A.  v.  v.  Seligman,  107  U.  S.  20. 


CH.  vri.]  Banking.  71 

The  liability  of  a  stockholder  in  a  national  bank  for  assess- 
ments made  by  the  Comptroller  of  the  Currency  on  insolvency 
of  the  bank,  is  not  dependent  upon  the  contract  of  subscription 
between  the  stockholder  and  the  corporation,  but  is  created  by 
statute  for  the  benefit  of  the  bank's  creditors,  and  can  be 
neither  modified  nor  released  by  any  act  of  the  corporation. 

In  the  case  of  Scott  v.  Latimer,  89  Fed.  Eep.  843,  the  court, 
in  discussing  this  question^  says: 

'•  The  liability  sought  to  be  enforced  in  this  case  is  not  one 
created  by  a  contract  existing  between  the  corporation  and  the 
stockholders,  but  is  one  created  by  statute  in  favor  of  creditors, 
and  not  in  favor  of  the  corporation.  It  is  a  liability  which 
cannot  be  affected,  discharged,  or  released  by  any  action  taken 
by  the  corporation,  or  by  the  combined  action  or  agreement 
of  the  corporation  and  its  stockholders.  Thus,  in  Delano  v. 
Butler,  118  U.  S.  634;  7  Sup.  Ct.  Eep.  39,  it  appeared  that  the 
stockholders,  in  order  to  meet  the  liabilities  of  the  bank,  liad 
made  an  assessment  of  100  per  cent,  upon  the  capital  stock 
which  was  paid  in,  but  the  bank  was  ultimately  compelled  to 
go  into  liquidation,  and  the  Comptroller  made  an  assessment 
upon  the  stockholders  under  the  provisions  of  section  5151  of 
the  Revised  Statutes.  The  Supreme  Court  held  that  the  pay- 
ment of  the  assessment  made  by  the  stockholders  did  not  relieve 
them  from  liability  for  the  assessment  made  by  the  Comp- 
troller, it  being  said  that: 

"  'Under  section  5151  the  individual  liability  does  not  arise, 
except  in  case  of  liquidation  and  for  tlie  purpose  of  mnding 
up  the  affairs  of  the  bank.  The  assessment  under  that  section 
•is  made  by  the  authority  of  the  comptroller  of  .the  currency, 
is  not  voluntary,  and  can  be  applied  only  to  the  satisfaction  of 
the  creditors  equally  and  ratably.' 

''  It  is  thus  made  clear  that  the  liability  sought  to  be  enforced 
in  this  case  is  not  dependent  upon  the  terms,  or  in  fact  upon 
the  existence,  of  a  contract  of  subscription  to  the  capital  stock 
of  the  bank,  but  it  is  a  liability  imposed  by  statute  in  favor  of 
creditors,  and  it  is  a  liability,  as  already  said,  which  cannot  be 
modified  or  released  by  any  action  on  part  of  the  corporation 
or  of  the  corporation  and  its  stockholders.  It  is  created  for 
the  benefit  of  the  creditors,  and  no  action  on  part  of  the  bank 
can  estop  the  creditors  from  enforcing  their  rights  in  this  par- 


72  Stockholdees'  Rights  and  Liabilities,      [cii.  vii. 

ticiilar.  Upon  whom  does  the  statute  impose  the  liability  ^  In 
Bank  v.  Case,  90  U.  S.  G2S,  and  Bowdeu  v.  Johnson,  107  U.  S. 
251,  2  Sup.  Ct.  246,  it  was  ruled  that  the  actual  or  beneficial 
owner  of  the  stock  would  be  liable,  and  that  this  liability  could 
not  be  evaded  by  the  device  of  transferring  the  title  to  a  third 
person,  who  might  be  financially  irresponsible.  "  In  Paulj  t. 
Trust  Co.,  165  U.  S.  606,  17  Sup.  Ct.  465,  it  is  said: 

"  '  It  is  true  that  one  who  does  not,  in  fact,  invest  his  money 
in  such  shares,  but  who.  although  receiving  them  simply  as  col- 
lateral security  for  debts  or  obligationss,  holds  himself  out  on 
the  books  of  the  association  as  true  owner,  may  be  treated  as 
the  owner,  and  therefore  liable  to  assessment,  when  the  asso- 
ciation becomes  insolvent,  and  goes  into  the  hands  of  a  receiver. 
But  this  is  on  the  ground  that,  by  allowing  his  name  to  appear 
upon  the  stocklist  as  o^^^ler,  he-  represents  that  he  is  such  owner, 
and  he  will  not  be  permitted,  after  the  bank  fails,  and  when 
an  assessment  is  made,  to  assume  any  other  position  as  against 
creditors.  If,  as  between  creditors  and  the  person  assessed, 
tlie  latter  is  not  bound  by  that  representation,  the  list  of  sharc- 
hcdders  required  to  be  kept  for  the  inspection  of  creditors  and 
others  would  lose  most  of  its  value.  *  *  *  ^\s  already 
indicated,  those  may  be  treated  as  shareholders,  within  the 
meaning  of  section  5151,  who  are  the  real  owners  of  the  stock, 
or  who  hold  themselves  out,  or  allow  themselves  to  be  held  out, 
as  owners,  in  such  way  and  under  such  circumstances  as,  upon 
principles  of  fair  dealing,  will  estop  them,  as  against  creditors, 
from  claiming  that  they  were  not  in  fact  owners.'  " 

The  contrary  doctrine  to  that  just  enunciated  is:  That  a 
stockholder  may,  by  express  contract,  entered  into  with  a  cor- 
porate creditor,  waive  his  liability  upon  a  debt,  which  at  the 
time  is  incurred. ^° 

In  the  case  of  Brown  v.  Eastern  Slate  Co.,  131:  Mass.  590, 
where  a  bill  in  equity  was  instituted  against  the  stockholder  of 
the  corporation  to  enforce  payment  of  the  judgment  under  the 
statute  of  the  State,  the  court  held  that  an  oral  agreement 
might  be  shown  as  a  part  of  the  contract  to  exempt  the  stock- 
holders from  a  statutory  liability. 

30Rol)inson    v.    Bidwell,    22    Cal.        Bush     r.     Robinson.     0.")     Kv.     402; 
370;   French  r.  Teschomaker.  24  Cal.       U.  y.  i:  Sanford,  IGl  U.  S.  412. 
518;   Wells  i\  Black,  117  Cal.  157; 


CH.  VII.]  Baxkixg.  73 

§  63.  Fixing  date  of  liability. 

If  a  liability  does  not  exist  by  statutory  provision  at  the  time 
of  subscribing  for  stock,  a  new  remedy  against  stockholders 
cannot  affect  those  who  took  shares  in  the  corporation  before 
its  passage. 

The  proposition  may  be  again  stated  as  follows:  AVhere  a 
liability  does  not  exist  at  the  time  of  subscribing  for  stock,  in 
a  corporation  organized  under  the  general  laws  of  a  State,  a 
statute  cannot  afterwards  be  enacted  imposing  a  liability. 

In  the  case  of  Grand  Rapids  Savings  Bank  v.  Warren,  52 
Mich.  557,  in  discussing  this  question  the  court  says: 

"  The  liability  for  which  this  proceeding  is  instituted  arose 
previous  to  the  passage  of  this  statute,  and  the  claimant  at  the 
date  of  this  statute  had  a  right  to  recover  its  demands  of  the 
stockholders  of  the  Exchange  Bank  of  Big  Rapids^  on  the  fail- 
ure of  the  bank  to  pay  them.  If  the  Act  of  1877  is  to  be 
applied  to  these  demands,  it  takes  away  the  right  as  to  all 
the  stockholders  who  are  non-residents,  unless  they  voluntarily 
come  to  the  State  so  that  process  may  be  served  upon  them. 
It  also  enables  any  resident  stockholder  to  escape  liability  by 
absenting  himself  from  the  State  so  that  process  may  not  be 
served.  And  apparently  it  takes  it  away  as  to  all  estates  of 
deceased  stockholders.  But  an  act  which  could  have  this  effect 
would  be  clearly  inoperative,  at  least  as  to  the  cases  in  which 
its  enforcement  would  release  parties  before  liable,  because  it 
would  to  that  extent  impair  the  obligation  of  contracts.  It 
would  be  inoperatiA'e,  therefore,  as  to  this  estate.  And  this, 
we  think,  not  only  in  so  far  as  it  undertook  or  assumed  to  give 
a  new  remedy  but  also  in  so  far  as  to  take  away  those  which 
existed  before. 

"  We  agree,  therefore,  with  the  circuit  judge,  that  the  claim- 
ant was  entitled  to  prove  its  claim  as  Avas  done  against  the 
estate.  TTe  also  think  that  the  liability  of  the  shareholders  is 
commensurate  with  that  of  the  corporation  itself,  and  extends 
to  costs  and  interest  on  the  judgments." 

§  64.  Extent  of  stockholder's  statutory  liability. 
The  extent  of  liability  against  the  stockholder  in   a   State 
bank  is  fixed  and  determined  bv  the  statute  of  the  State. 
In  most  of  the  States  the  liabilitv  is  a  double  liabilitv. 


74  Stockiioldees'  Eights  axd  Liabilities,      [cii.  vii. 

In  tlie  State  of  California,  each  stockholder  of  a  corpora- 
tion is  individually  and  personally  liable  for  such  proportion  of 
all  of  its  debts  and  liabilities  contracted,  or  incurred,  during 
the  time  he  was  a  stockholder,  as  the  amount  of  stock  or  shares 
owned  by  him,  bears  to  the  whole  of  the  subscribed  capital 
stock  or  shares  of  the  corporation.  Any  creditor  of  the  cor- 
poration may  institute  joint  or  several  actions  against  any  of 
its  stockholders  for  the  proportion  of  his  claim,  payable  by 
each,  and  in  such  action  the  court  must  ascertain  the  propor- 
tion of  the  claim  or  debt  for  which  each  defendant  is  liable, 
and  a  several  judgment  must  be  rendered  against  each  in  con- 
formity therewith.  The  liability  of  each  stockholder  is  deter- 
mined by  the  amount  of  stock  or  shares  owned  by  him,  at  the 
time  the  debt  or  liability  was  incurred ;  and  such  liability  is 
not  released  by  any  subsequent  transfer  of  stock. 

A  bank  charter  declaring  that  "  the  stockholders  of  said  bank 
shall  be  personally  and  individually  liable  for  all  losses,  de- 
ficiencies and  failures  of  the  capital  stock  of  said  bank,"  has 
been  held  to  make  the  shareholder  personally  liable  to  the 
creditors  of  the  bank  for  its  indebtedness  in  proportion  to  their 
respective  shares  in  the  stock  of  the  same,  and  not  merely  bound 
to  keep  the  capital  good  by  assessments.  An  important  case 
discussing  this  question  is  the  case  of  Queenan  et  al.  v.  Palmer 
et  al.,  117  111.  619.  In  this  case  it  is  held,  that  where  the  char- 
ter of  a  banking  corporation  makes  its  stockholders  individually 
liable  to  the  amount  of  the  stock  held  by  them  respectively  to 
depositors,  and  other  creditors  of  the  bank,  for  any  losses  they 
may  sustain,  such  liability  is  a  common  fund  for  the  security 
of  creditors,  and  a  court  of  equity  aside  from  the  ground  of 
discovery,  will  have  jurisdiction  of  a  bill  by  a  creditor  for  him- 
self and  others  to  enforce  such  liability,  and  control  the  fund 
thus  obtained  for  their  benefit,  and  distribute  the  same  ratably 
among  them. 

An  action  at  law  in  such  case  is  declared  by  the  court  as 
being  inadequate  Mntliout  the  bringing  of  a  multiplicity  of  suits. 

Where  a  bank  charter  provides  that  the  stockholder  shall 
"  be  responsible  in  his  individual  property  in  an  amount  equal 
to  the  amount  of  stock  held  by  him,  to  make  good  losses  to  de- 
positors: "  Held  by  the  court  that  the  individual  liabil- 
ity was  not  in  the  nature  of  a  penalty,  and,  therefore,  en- 


CH.  VII.]  Bain'king.  T5 

f orceable  only  in  a  court  at  law ;  but  was  primary  and  subject 
to  the  demand  of  depositors  and  other  creditors  equally  with 
the  assets  of  the  bank. 

In  construing  the  statute  making  stockholders  liable,  the 
court  holds  that  where  a  charter  or  statute  makes  the  stock- 
holders of  a  corporation  individually  responsible  in  an  amount 
equal  to  their  stock,  "  to  make  good  losses  to  depositors  or 
others,"  will  be  construed  to  make  the  stockholders  liable  to  all 
creditors  who  may  suffer  from  the  default  or  failure  of  the 
corporation  to  pay  its  indebtedness. 

§  65.  Liability  of  pledgee  or  trustee. 

The  Supreme  Court  of  the  United  States  in  the  case  of 
Rankin  v.  Fidelity  Ins.  Co.,  189  U.  S.  242,  in  discussing  the 
question  as  to  who  are  stockholders,  pledgees,  or  trustees,  hold- 
ing stock  in  a  national  bank,  says: 

"  1.  That  liability  may  be  established  by  allowing  one's  name 
to  appear  upon  the  books  of  the  corporation  as  owner,  though 
in  fact  he  be  only  a  pledgee.  Pullman  v.  Upton,  96  U.  S.  328. 
Xor  can  the  real  owner  exonerate  himself  from  responsibility 
by  making  a  colorable  transfer  of  the  stock,  with  the  under- 
standing that  at  his  request  it  shall  be  re-transferred.  Xational 
Bank  v.  Case,  99  U.  S.  628  ;  Bowden  v.  Johnson,  107  U.  S.  251 ; 
Stuart  V.  Hayden,  169  U.  S.  1. 

"  2.  Stockholders  of  record  are  liable  for  unpaid  install- 
ments, though  in  fact  they  may  have  parted  with  their  stock, 
or  held  it  for  others.    Hawkins  v.  Glenn,  131  U.  S.  319. 

"  3.  A  mere  pledgee,  however,  who  receives  from  his  debtor 
a  transfer  of  shares,  surrenders  the  certificate  to  the  bank  and 
takes  out  new  ones  in  his  ovm  name,  in  which  he  is  described 
as  '  pledgee,'  and  holds  them  afterward  in  good  faith,  and  as 
collateral  security  for  the  pa^anent  of  his  debt,  is  not  subject 
to  personal  liability  as  a  shareholder.  Pauly  v.  State  Loan  and 
Trust  Co.,  165  U.  S.  606.  But  it  is  otherwise,  if  he  allows  his 
name  to  appear  on  the  book  as  owner,  or  being  the  owner, 
makes  a  colorable  transfer  of  the  stock.  ISTational  Bank  v.  Case, 
99  U.  S.  628." 

Where  the  shares  of  stock  in  a  banking  corporation  have 
been  hypothecated,  and  placed  in  the  hands  of  a  transferee,  he 


76  Stockiioldeks'  Rights  and  Liabilities,      [cii.  vii.- 

mll  be  subject  to  all  the  liability  of  ordinarv  o^\Tiers ;  for  the 
reason  the  property  is  in  his  name  and  the  legal  ownership 
appears  to  be  in  him.^^ 

Where  the  transfer  appears  to  be  absolute  on  the  books  of 
the  bank,  the  transferee  is  liable  for  the  debts  of  the  corpora- 
tion, notwithstanding  he  may  hold  snch  stock  by  transfer  or 
assignment  as  collateral  security  for  a  loan  to  the  shareholder 
from  whom  he  receives  the  transfer."^ 

In  the  case  of  Union  Savings  Association  v.  Seligman,  92 
Mo.  635,  the  court  in  discussing  this  question  and  where  it  was 
shoA\Ti  that  the  certificate  of  stock  was  held  under  agreement, 
in  writing,  which  agreement  set  out  that  the  stock  was  held  as 
collateral  security,  says: 

"  The  simple  act  of  accepting  that  certificate  of  stock  under 
an  agreement  in  writing,  which  as  also  the  entry  of  the  stock 
in  the  stock-book  the  other  records  of  the  company  relating  to 
the  transaction  showed  that  it  was  held  by  them  only  as  col- 
lateral security,  does  not  make  them  liable  as  stockholders, 
either  to  the  coi'poration  or  its  creditors.  As  long  as  they  held 
the  stock  under  that  agreement,  doing  no  other  act,  their  lia- 
bility to  creditors  depended  upon  their  legal  relation  to  the 
company.  If  stockholders  as  between  themselves  and  the  cor- 
poration, they  would  be  liable  as  such  to  creditors  of  the  cor- 
poration, otherwise  not."  ^^ 

§  66.  An  assignment  absolute  in  form  may  be  shown  to  be 
intended  as  security  only. 

It  is  always  competent  to  show  that  an  assignment  or  con- 
veyance absolute  in  form  is  intended  as  a  security  only ;  and  in 
an  action  by  creditor  of  a  banking  corporation  against  a  stock- 
holder to  enforce  statutory  liability,  it  is  held:  evidence  is 
proper  upon  the  part  of  defendant  to  show  that  an  assignment 
of  stock,  absolute  upon  its  face,  was  in  fact  given  to  liini  as 
collateral  security,  and  was  held  by  him  for  that  purpose  only.^* 

31  Wlicclock  r.  Kost  ct  al.,  77  111.  34i:)ospar(l  r.  Walbridpe,  15  N.  Y. 
200.  374;    SUirtovnnt    r.    Sturtpvant,    20 

32  Hale  r.  Walker,  31  Iowa  344.  N.    Y.    39;    McMalion    v.    Macy,   51 

33  Burgess  r.  Seligman,  107  U.  S.  N.  Y.  155. 
20. 


CH.  VII.]  BANKIIiTG.  77 

The  general  rule  as  laid  doivn  however  may  he  stated  as 
follows:  A  private  agreement  between  the  transferrer  and  the 
transferree  that  the  former  shall  not  he  liable  will  not  relieve 
him  from  liability?'^ 

§  67.  Statute  protecting  pledgee. 

Where  the  statute  protects  the  pledgee  from  liability,  the 
stock  if  transferred  on  the  stock  books  of  the  corporation  must 
show  that  it  is  held  as  pledged  property,  otherwise  the  liability 
will  rest  upon  the  party  shown  to  be  the  owner  by  the  books 
of  the  corj3oration. 

§  68.  Individual  liability  of  shareholders  of  national  banks. 

The  individual  liability  of  shareholders  in  a  national  bank 
arises  under  section  5151,  Revised  Statutes  of  the  United 
States.     Which  reads  as  follows: 

"  The  shareholders  of  every  national  banking  association 
shall  be  held  individually  responsible,  equally  and  ratably,  and 
not  one  for  another,  for  all  contracts,  debts,  and  engagements 
of  such  association  to  the  extent  of  the  amount  of  their  stock 
therein,  at  the  par  value  thereof,  in  addition  to  the  amount  in- 
vested in  such  shares,  except  that  shareholders  of  any  banking 
association  now  existing  under  State  laws  having  not  less  than 
five  millions  of  dollars  of  capital  actually  paid  in  and  a  surplus 
of  twenty  per  centum  on  hand,  both  to  be  determined  by  the 
Comptroller  of  the  Currency,  shall  be  liable  only  to  the  amount 
invested  in  their  shares ;  and  such  surplus  of  twenty  per  cen- 
tum shall  be  kept  undiminished,  and  be  in  addition  to  the  sur- 
plus provided  for  in  this  Title ;  and  if  at  any  time  there  is  a 
deficiency  in  such  surplus  of  twenty  per  centum  such  association 
shall  not  pay  any  dividends  to  its  shareholders  until  the  de- 
ficiency is  made  good ;  and  in  case  of  such  deficiency  the  Comp- 
troller of  the  Currency  may  compel  the  association  to  close  its 
business  and  wind  up  its  affairs  under  the  provisions  of  chapter 
four  of  this  Title.'' 

A  stockholder's  liability  arises  and  exists  by  force  of  the 
Statute  and  is  not  contractual.^^ 

35  Bells  Appeal,  11.5  Pa.  State  8S,  v.  Hitz.   133  U.   S.    138:   First  Xat. 

2  Am.  St.  Ren.  -532.  Bank    of    Concord    v.    Hawkins,    33 

3G  First  Xat.  Bank  of  Concord  r.  U.  S.  App.  747. 
Hawkins,  79  Fed.  Rep.  51 ;   Keyser 


78  Stockholders'  Rights  and  Liabilities,      [ch.  vii. 

A  stockholder's  liability  is  restricted  to  contracts  and  debts 
of  the  bank  which  have  been  contracted  in  the  ordinary  course 
of  biisiness.^^ 

Where  a  bank  has  been  placed  into  voluntary  liquidation  a 
stockholder  cannot  be  held  for  the  claims  of  new  creditors.^^ 

§  69.  Extent  of  liability. 

A  stockholder  in  a  national  bank  is  liable  in  proportion  to 
the  whole  amount  of  the  deficit  that  his  own  stock  bears  to  the 
whole  amount  of  the  capital  stock  at  its  par  value. ^^ 

A  solvent  shareholder  cannot  be  required  under  the  law  to 
contribute  more  than  his  proportion  in  order  to  make  good  the 
deficiency  of  an  insolvent  shareholder.'*^ 

§  70.  Liable  fcr  interest. 

The  law  holds  a  shareholder  liable  for  the  interest  on  debts 
of  the  bank  as  well  as  for  the  principal.^^ 

§  71.  Representatives  of  deceased  shareholder  liable. 

The  representatives  of  a  deceased  shareholder  cannot  defeat 
a  liability,  though  he  dies  before  the  insolvency  of  the  bank.^^ 

The  fact  that  the  title  to  the  stock  of  a  deceased  stockholder 
is  vested  in  an  administrator  will  not  relieve  the  estate  from 
an  assessment.^^ 

§  72.  Married  woman  stockholder. 

In  Vermont  (and  many  other  States)  a  married  woman  is 
competent  to  become  a  stockholder  in  a  corporation,  and  to  con- 
tract to  charge  her  separate  property  with  the  payment  of  any 
liability  which  is  implied  from  entering  into  that  relation.*^ 

In  Xorth  Carolina  a  Code  section  1826  provides,  that  no 
woman  during  coverture  shall  be  capable  of  making  any  con- 
tract to  affect  her  real  and  personal  estate  without  the  written 
consent  of  her  husband.  But  the  court  holds  that  a  purchase 
of  stock  by  a  married  woman  is  not  a  "  contract "  within  the 
terms  of  the  statute,  and  that  the  wife  is  liable  upon  an  assess- 

37  Richmond   v.   Irons,    121  U.    8.  41  Case v   v.   GalH,   94  U.   S.   673; 
27;    Schrader   v.  Mfg's.  Xat.  Bank,       Richmond  r  Irons,  121  U.  S.  27. 
133  U.  S.  07.  42  Wickman  r.  Hull,  GO  Fed.  Rep. 

38  Schrader  v.  Mfg's.  Xat.  Bank,  32G ;  Richmond  v.  Irons,  121  U.  S. 
133  U.  S.  07.  27. 

30  United  States  v.  Knox,  102  U.  S.  43  Davis  v.  Weed,  44  Conn.  .'jOn. 

422.  44  Witters  v.  Sowles,  38  Fed.  Rep. 

40  Schrader  v.  Mfg's.   Nat.   Bank,  700. 
133  U.  S.  67. 


CH.  VII.]  Banking.  79 

ment,  though  purchased  without  the  written  consent  of  her 
husband.     In  discussing  this  question,  the  court  says : 

"  To  hold  that  a  State  law,  were  there  such  a  law,  could 
except  certain  shares  from  the  liability,  would  enable  States  to 
defeat  the  policy  of  the  Federal  government  in  establishing  the 
national  banking  system.  That  the  Congress  has  power  to 
establish  and  legislate  for  such  banks  has  not,  since  1819,  been 
an  open  question.  McCulloch  v.  Maryland,  4  Wheat.  316.  If 
a  purchase  of  stocks  in  a  national  bank  by  a  married  woman 
without  the  written  consent  of  her  husband  gives  her  the  owner- 
ship of  such  stock,  judgment  must  be  given  against  the  femme 
defendant.  If  she  owned  the  stock  at  the  failure  of  the  bank, 
she  is  liable  to  the  assessment;  if  she  did  not,  she  is  not  liable. 
While  the  Federal  government  exclusively  controls  the  ques- 
tion of  the  liabilities  of  stockholders  in  national  banks,  it  is  not 
doubted  but  that  a  State  has  power  to  say  that  for  reasons  seem- 
ing good  to  its  Legislature,  and  not  in  conflict  with  organic  law, 
a  particular  class  of  persons  shall  not  be  permitted  to  o^^m  par- 
ticular classes  of  property.  It  may  lawfully  be  provided  that 
a  guardian  or  other  trustee  may  not  invest  in  securities  other 
than  those  specified  by  statute.  Probably  it  might  be  held  that 
a  statute  might  constitutionally  provide  that  purchases  by 
guardians  of,  say,  railroad  stock,  in  the  name  of  their  trust, 
should  be  absolutely  void.  In  such  case  it  might  be  held  that 
an  attempted  transfer  of  such  stock  so  purchased  passed  no 
title;  that  the  stock  still  remained,  although  duly  assigned  and 
transferred,  on  the  corporation  books,  the  property  of  the 
vendor;  and  that  the  guardian  could  recover  the  money  paid 
from  the  vendor.  It  would,  I  think,  require  strong  and  plain 
words  to  induce  courts  to  give  such  a  construction  to  an  act  of 
the  Legislature."  ^^ 

The  law  as  previously  stated  is:  A  married  woman  may 
become  a  stockholder  in  a  State  bank  where  the  law  of  the 
State  in  which  the  contract  is  made  permits  it  and  she  will  be 
subject  to  all  the  liabilities  as  such.^*^ 

A  married  woman  in  the  District  of  Columbia  may  liecome  a 
holder  of  stock  in  a  national  banking  association,  and  assume 
all  the  liabilities  of  such  a  shareholder,  although  the  considera- 
tion may  have  proceeded  wholly  from  the  husband. 

45  Robinson  r.  Turrentine,  59  Fed.  4G  Bundy  r.  Cook,  128  U.  S.  185. 

Rep.  554. 


80  Stockholders'  Eights  and  Liabilities,      [cii,  vii. 

The  coverture  of  a  married  woman  who  is  a  shareholder  in 
a  national  bank  does  not  prevent  the  receiver  of  the  bank  from 
recoverinii'  jiuloment  against  her  for  the  amount  of  an  assess- 
ment levied  upon  the  shareholders  eqiially  and  ratably  under 
the  statutes.^^ 

Where  one  kno^^'ingly  permits  his  name  to  be  entered  upon 
the  stock  books  of  a  bank  as  the  owmer,  he  cannot  be  permitted 
as  against  creditors  or  a  receiver  of  the  bank  to  show  that  he 
was  not  the  owner  of  the  stock,  and  it  is  held  that  he  is  liable 
for  assessments  thereon  though  he  held  the  stock  in  fact  as 
trustee  for  the  bank  itself.'^^ 

This  is  in  direct  contravention  of  the  law  as  laid  down  in  the 
case  of  McMahon  v.  Macy,  51  X.  Y.  155. 

Where  a  stockholder  sold  stock  several  months  before  the 
insolvency  of  the  bank,  but  the  transfer  was  not  made  on  the 
books  until  the  date  of  the  bank's  failure,  held,  that  the  stock- 
holder incurred  the  statutory  liability."*^ 

But  where  the  stockholder  has  delivered  his  certiticate  of 
stock  with  a  power  of  attorney  to  an  officer  of  the  bank, 
which  power  of  attorney  directed  him  to  immediately  make 
the  transfer  on  the  books,  the  owner  of  the  stock  will  not  be 
held  responsible  for  the  failure  of  such  officer  to  actually 
m.ake  the  transfer,"" 

Where  stock  has  been  placed  upon  the  stock  book  in  the 
name  of  a  person  mth  the  knowledge  of  such  fact,  and  he  fail? 
to  repudiate  the  transfer  to  himself,  or  deny  the  ownership, 
he  is  held  liable  as  the  owner  of  such  stock.^^ 

Where  the  by-laws  of  a  bank  require  that  the  transfer  of 
the  stock  shall  be  registered,  where  a  certificate  is  issued  to 
a  subsequent  purchaser  in  lieu  of  a  certificate  of  a  prior  owner, 
such  person  will  be  held  liable  as  a  stockholder.''" 

§  73.  Executors,  administrators,  guardians,  or  trustees  not  per- 
sonally liable. 

Section  5152  Revised  Statutes  of  the  United  States  provide?: 
That    ''  persons    holding    stock    as    executors,    administrators, 

47Kevser  r.  Ilitz,  13.3  U.  S.  138;  6;");");    Cox    r.   Elmcndorf,    97    Tenii. 

Bxindv  r.  Cocke,  128  U.  S.  185.  .518;   Hayes  r.  Shoemackcr,  .39  Fed. 

48  Lewis  r.  Switz,  74  Fed.  Rep.  381.  Rep.  319. 

4!)Riclimond  r.  Irons,  121  U.  S.  27.  "'l  Finn  r.  Brown,  142  V.  S.  50. 

50  Whitney    r.   Butler,    118   U.    S.  M  Lnin<?  r.  Burley,  101  111.  591. 


en.  VII.]  Banking.,  81 

giia^rdians,  or  tnistees,  shall  not  be  personallj  subject  to  any 
liabilities  as  stockliolders-;;  but  tlie  e&tates  and.  funds  in  tlicir 
hands-  shall  be  liable  in  like  manner  and  to  the  same  extent 
as  the  testator,  intestate,  ward,  or  person  interested:  in  such 
trust-funds  would  be,,  if  living  and  competent  to  act  and  hold 
the  stock  in  his  own  name.." 

Where  the  widow  of  a  deceased  stocldiolder-  of  an  insolvent 
national  bank,  by  authority  of  the  will,  undiertook.  to-  settle 
the  estate  as  executrix  without  judicial  proceedings^  but  failed 
to  transfer-  such  stock  to  herself  or  other  person,  cannot  on. 
the  ground  that  the  estate  is  settlied',  escape-  liability  as-  ex-ecu- 
ti'ix  for  assessments  on  such  stock  to  the  extent  of  assets  of  the 
estate  under  her  eontrol.^^ 

In  the  case  of  Lucas  v.  Coe,  86  Fed  Rep,  972,  it  i&  held  that 
"  A  trustee  though  not  appointed'  by  will  or  an  order  of  the 
court,  or  judge,  is  not  personally  liable  for  assessment  ag-ainst 
stock  of  an  insolvent  national  bank  owned  by  the  cestui  que 
trust,  but  standing  in  his  name  where  he  has  been  guilty  of 
no  fraud,  concealment  or  negligence. 

^'  In  fixing  the  liability  for  assessment  against  stock  of  an 
insolvent  national  bank,  the  effort  of  the  court  should  be  to 
ascertain  who  is  the  actual  owner  and  to  hold  him,  releasing 
the  apparent  owner  if  he  has  done  nothing  to  deceive  or  mis- 
lead." 

Another  question  not  determined  by  the  court,  but  very 
strongly  leading  in  that  direction  is,  that  proof  may  be  pre- 
sented to  show  who  is  the  real  owner  of  the  stock.^^ 

§  74.  Individual  liability  of  a  stockholder  in  national  bank,  how 
enforced. 

When  the  individual  liability  of  the  stockholder  is  to  be 
enforced,  the  receiver  before  beginning  suit  must  have  au- 
thority from,  the  Comptroller  of  the  Currency.  It  is  held  that 
a  letter  from  the  Comptroller  of  the  Currency  directing  the 
receiver  to  institute-  suit  is  sufficient  evidence  if  not  objected 
to,  that  the  Comptroller  has  decLded  to  enforce  the  individual 
liability  of  the  stockholder.^^ 

53  Baker  v.   Bfeach,   85   Eedi   Bep.  ^  Bo-n-den  v.  Johnson,   107  U.  S. 

836.  25 L 

t>4  Lucas  r.  Coe,  8G  Fed.  Rep.  972. 
6 


82  Stockholders'  Rights  and  Liabilities,      [ch.  vii. 

§  75.  Creditor  may  sue  stockholder  of  state  bank  corporations. 

A  judgment  creditor  who  has  exhausted  his  legal  remedies 
against  a  corporation  in  California  may  maintain  an  action 
affainst  its  stockholders  to  recover  for  the  benefit  of  all  tlie 
creditors  who  may  desire  to  come  in,  and  be  made  party,  and 
collect  the  amount  due  upon  unpaid  subscriptions  for  stock 
when  the  corporation  neglects  or  refuses  to  collect  the  same.^** 

In  Indiana  the  assignee  of  an  insolvent  bank  cannot  main- 
tain an  action  to  enforce  the  double  liability  of  shareholders, 
provided  by  section  2933  Burns  Revised  Statutes,  1894  (2684 
Revised  Statutes  1881).  Such  action  being  enforceable  only 
by  the  creditors. '^^ 

§  76.  Enforcement  of  individual  liability  of  shareholders  under 
the  National  Banking  Act. 

By  an  act  approved  June  30,  1876,  section  2,  it  is  provided: 

"  That  when  any  national  banking  association  shall  have 
gone  into  liquidation  under  the  provisions  of  section  five  thou- 
sand two  hundred  and  twenty  of  said  statutes,  the  indi'sddual 
liability  of  the  shareholders  provided  for  by  section  fifty-one 
hundred  and  fifty-one  of  said  statutes  may  be  enforced  by  any 
creditor  of  such  association,  by  bill  in  equity  in  the  nature 
of  a  creditor's  bill,  brought  by  such  creditor  on  behalf  of  him- 
self and  of  all  other  creditors  of  the  association,  against  the 
shareholders  thereof,  in  any  court  of  the  United  States  having 
original  jurisdiction  in  equity  for  the  district  in  which  such 
association  may  have  been  located  or  established." 

§  77.  When  right  of  action  accrues  against  stockholder  in 
national  bank. 

A  right  of  action  does  not  accrue  against  the  stockholder 
holding  stock  in  a  national  bank  until  the  Comptroller  of  the 
Currency  has  detennined  that  it  is  necessary  to  enforce  the 
individual  liability. 

And  the  liability  of  the  stockholder  can  be  enforced  only 
in  favor  of  all  the  creditors.^^ 

The  Statute  of  Limitations  of  a  State  cannot  be  pleaded  as 
a  bar  to  an  action  brought  by  a  receiver  of  a  failed  national 
bank  against  a  stockholder. 

r>6Bainps  y.  Babcock,  95  Cal.  581.  ns  Gatch    r.    Fitch,    34    Fed.    Rep. 

f>7  Runner,  Assignee,  v.  Dwiggins,       566. 
147  Ind.  238. 


CHAPTER  VIII. 


BANK  OFFICERS  AND  AGENTS. 

§  78.  Directors  —  general  discussion  of  duties  and  responsibili- 
ties. 

The  corporate  powers,  business  and  property  of  all  corpora- 
tions formed  must  be  exercised,  conducted  and  controlled  by 
a  board  of  directors. 

Tlie  office  of  director  is  one  of  the  most  important  connected 
with  a  banking  corporation.  Directors  have  the  general  control 
and  government  of  all  its  affairs.  They  are  the  lawful  repre- 
sentatives holding  by  law  the  management  and  direction  of 
all  acts  aifecting  the  welfare  and  prosperity  of  the  corpora- 
tion. The  life  of  the  corporation  and  its  business  cannot 
exist  or  be  conducted  without  a  board  of  directors.  They  are 
delegated  with  certain  powers  and  duties  by  law  which  cannot 
be  transferred  or  conferred  upon  agents.  A  director  cannot 
delegate  a  responsibility  which  the  statute  imposes  upon  him 
to  specially  and  personally  perform.  But  for  the  purpose  of 
carrying  into  execution  the  usefulness  and  management  of  its 
details  in  business  many  of  the  powers  conferred  upon  the 
corporation  bank  may  be  delegated  to  agents  created  by  the 
board  of  directors.  And  while  this  is  true,  and  although  they 
may  not  be  required  to  perform  all  the  transactions  which 
daily  occur,  they  are  bound  to  know  all  that  is  done  beyond 
the  merest  matter  of  daily  routine. 

They  are  the  officers  delegated  by  law  with  the  power  to 
restrain,  rule,  govern,  direct,  check,  curb,  overpower  and 
counteract  any  and  all  things  affecting  the  corporation.  They 
cannot  pass  by-laws,  or  resolutions,  relieving  themselves  of 
responsibility,  or  lialiility,  which  the  law  imposes  upon  them. 
Being  in  control  of  the  powers,  business  and  property,  all  acts 
however  performed  by  agents  of  their  creation  may  become 
their  acts.  Agents  may  exceed  their  authority  or  violate  the 
same  in  such  a  manner  that  the  directors  and  the  corporation. 
may  be  excused ;  but  the  general  principle  of  law  is,  that  the 
acts  of  the  agents  are  the  acts  of  the  principal. 

[83] 


84  Bank  Officers  a:nd  Agents.  [cii.  viii. 

The  office  of  a  director  is  one  of  the  most  important  con- 
nected with  a  banking  corporation ;  but  the  duties,  as  a  rule, 
are  looked  upon  as  unimportant,  and  in  many  cases  the  neglect 
of  the  directors  in  the  performance  of  their  duties  bring? 
disaster  to  the  bank. 

The  failure  of  directors  to  perform  their  duty  in  the  super- 
vision and  management  of  banks  has  been  the  direct  cause 
for  the  arrest,  trial  and  imprisonment  of  officers  for  oifences 
committed  in  their  official  capacity,  which  could  have  been 
obviated  bad  the  directors  asserted  their  power  and  fully  per- 
formed such  duty. 

The  duty  of  a  director  begins  with  his  election  and  con- 
tinues for  one  year,  or  until  his  successor  is  duly  elected  and 
qualified.  The  faithful  execution  and  performance  of  all  the 
obligations  and  requirements  of  law  are  so  frequently  neg- 
lected, that  to  occupy  the  position  of  director  is  one  which 
the  occupant  himself  regards  as  merely  figurative.  But  such 
is  not  the  case. 

The  officers  of  a  bank  cannot  divest  the  directors  of  any 
power  imposed  upon  them  by  law.  They  cannot  sell  any  of 
the  property  or  real  estate  of  the  bank  unless  duly  authorized 
to  do  so  by  resolution  of  the  board  of  directors.  And  the 
instrument  of  conveyance  is  not  sufficient  to  pass  the  title  to 
the  property,  unless  it  sets  out  the  fact  that  it  was  ordered  to 
be  executed  by  resolution,  duly  passed  by  the  board  of 
directors. 

It  has  been  held  that  directors  have  no  authority,  directly 
or  indirectly,  to  use  any  of  the  funds,  or  property  of  the  bank, 
for  purposes  other  than  those  properly  belonging  to  the  legiti- 
mate business  of  banking.  They  can  make  no  gifts  of  the 
corporate  property,  unless  duly  authorized  by  all  the  stock- 
holdei*s, 

No  appropriation  in  any  manner  of  the  funds  or  property 
of  the  bank  can  be  made  by  them,  unless  it  is  clearly  beneficial 
and  for  the  material  well-being  of  the  bank.  They  are  the 
guardians  of  the  stockholder,  and  in  reference  to  the  property 
of  the  bank  are  the  trustees.  If  they  accept  the  irust,  it  is 
implied  that  they  will  use  their  best  efforts  to  advance  and 
protect  the  interest  of  the  stockholders.  The  position  being 
a  trust,  they  arc  enjoined  by  law  not  to  use  the  same  in  any 


cii.  VIII.]  Bankiis^g.  85 

manner  to  the  injury  and  detriment  of  the  stockholders  or 
the  bank.  They  cannot,  by  resolution,  order  the  sale  of  real 
estate  or  other  property  at  a  consideration  below  its  value  and 
buy  the  same.  A  director,  acting  in  the  position  of  trustee, 
cannot  make  a  jDrofit  off  of  the  stockholder,  who  is  the 
cestui  que  trust.  They  are  also  liable  for  losses  arising  from 
the  dii-ection  and  mismanagement  of  the  affairs  of  the  bank. 
Where,  however,  losses  occur  which  arise  from  unforseen  re- 
sults or  mistakes  arising  from  strictly  errors  of  discretion,  they 
cannot   be   held   responsible. 

Upon  the  question  of  notice  it  has  been  held  that  when  a 
director  is  engaged  in  the  business  of  banking  (and  being  a 
director  signifies  an  engagement),  notice  to  him  is  notice  to 
the  bank. 

It  is  a  well-established  principle  of  law,  that  if  a  director 
takes  a  part  in,  or  acts  for  the  bank  in  discounting  a  note 
which  at  the  time  is  known  to  him  to  be  tainted  with  fraud 
or  illegality,  the  bank  is  affected  with  this  information ;  and 
it  is  not  necessary  that  he  should  represent  the  bank.  If  he 
is  present  at  the  time  and  is  cognizant  of  such  facts,  it  is  held 
to  be  notice  to  the  bank. 

A  director,  being  a  trustee  of  the  property  of  a  corporation, 
is  held  while  acting  as  such,  especially  in  savings  banks-,  to 
a  strict  account.  It  becomes  his  duty  to  take  part  in  all  pro- 
ceedings held  or  acts  done;  while  he  is  present  at  directors' 
meetings,  he  cannot  close  his  eyes  and  remain  passive  while 
his  co-directors  are  wasting  by  improvident  investments  the 
property  and  moneys  of  the  bank.  It  is  his  duty  not  only 
actively  to  oppose  measures  passed  by  his  associates  which  are 
unlawful,  but  also  to  invoke  the  law  to  restrain  its  continu- 
ance, and  through  the  aid  of  the  law  seek  to  set  aside  such 
actions,  and  recover  property  and  money  which  has  been  un- 
lawfully disposed  of  in  such  cases. 

The  law  imposes  certain  duties  which  are  obligatory  and 
from  which  a  director  cannot  be  excused.  A  failure  to  per- 
form duties  which  the  laws  impose  makes  the  director  wlio 
wilfully  neglects  such  duty,  after  being  duly  qualified  in  oflice, 
liable  in  civil  damages  to  the  person,  or  persons,  injured  by 
such  gross  neglect. 

A  director  cannot  excuse  liimseK  from  statutory  duties,  and 


SQ  Bank  Officers  and  Agents.  [ch.  viii. 

grossly  ignore  the  law,  which  defines  the  obligation  resting 
upon  him. 

Where  the  position  is  accepted  and  capital  is  entrusted  to  the 
care,  management,  or  investment  under  the  direction  of  a  board 
of  directors,  whose  duties  are  defined,  and  they  wholly,  wil- 
fully, and  negligently  fail  in  the  performance  of  their  duties 
to  such  an  extent  as,  through  such  negligence,  results  in  loss, 
they  become  civilly  liable. 

They  may  become  criminally  liable  by  a  failure  to  observe 
and  comply  with  mandatory  laws  enacted  by  the  Legislature. 
A  failure  to  make  a  report  when  required  by  the  statute  to  be 
made  within  a  certain  time^  and  at  a  fixed  period,  whereby 
such  failure  the  purpose  in  non-compliance  is  to  defraud  or 
withhold  information  which  is  required  to  be  made  public, 
becomes  a  criminal  act. 

It  is  also  a  misdemeanor  for  a  director  to  make  false  entries 
in  any  book,  report  or  statement  of  the  bank,  with  the  intent 
to  deceive  the  officers  of  the  law. 

Where  the  directors  have  taken  any  portion  of  the  assets  of 
a  bank,  and  in  violation  of  law  distributed  the  same  as  a  divi- 
dend which  the  bank  has  not  earned,  and  where  they  receive  a 
portion  in  such  distribution,  they  become  civilly  liable  and 
their  acts  may  be  a  misdemeanor,  l^o  part  of  the  capital  of  a 
ccrporation  can  be  withdrawn  in  such  a  manner. 

They  cannot  in  any  manner  appropriate  any  portion  of  the 
])roperty  of  the  corporation  for  any  purpose  other  than  that 
duly  authorized  by  law. 

The  responsibility  resting  upon  a  board  of  directors  govern- 
ing a  bank  is  more  onerous  than  upon  a  board  of  directors 
that  may  preside  over  corporations  which  do  not  hold,  in  trust, 
money  belonging  to  the  general  public;  consequently  there  is 
a  greater  degree  of  responsibility  which  the  law  imposes.  This 
degree  of  responsibility  is  created  in  the  very  nature  of  the 
business  of  the  corporation  over  which  they  preside. 

Their  duties  extend  beyond  the  mere  fulfillment  of  the  man- 
datory provisions  of  the  law.  They  serve  more  in  the  capacity 
of  a  trustee,  and  are  bound  by  the  principals  of  law  governing 
that  office. 

They  are  an  advisory  board,  and  are  clothed  with  power  of 
direction  as  to  all  the  affairs  and  workings  of  the  bank. 


CH.  VIII.]  Banking.  87 

They  are  also  guardians  of  the  stockholders  and  the  de- 
positors. It  becomes  their  duty  to  make  examinations  into  the 
management  of  the  bank's  affairs ;  also  to  employ  such  agents 
as  are  qualified  to  conduct  a  business  of  such  peculiar  responsi- 
bilities. 

They  have  the  selection  of  the  president  of  the  bank,  the 
cashier  and  other  clerks  who  perform  the  clerical  work,  and 
when  selected  they  become  in  law  the  agents  of  the  board  of 
directors ;  and  their  acts,  if  performed  within  the  scope  of  their 
instructions,  authority,  and  duties,  are  the  acts  of  the  board 
which  have  been  simply  delegated. 

The  question  of  liability  of  the  principal  for  the  acts  of  his 
agent  is  one  largely  resting  upon  the  facts,  but  the  general 
principle  of  law,  as  is  w^ell  kno"s\Ti  and  defined,  is  that  the  prin- 
cipal is  liable  for  the  acts  of  his  agent.  A  violation  of  authority 
by  an  agent,  especially  where  the  party  dealing  -svitli  the  agent 
has  knowledge,  or  has  reason  to  believe,  that  the  agent  is  acting 
beyond  his  authority,  will  relieve  the  principal  of  liability;  but 
if  an  agent  of  a  banking  corporation  has  been  permitted,  with 
the  knowledge  of  the  board  of  directors,  to  perform  certain  acts 
not  delegated  to  him  or  authorized,  which  are  unlawful,  and 
they  have  been  sanctioned  by  the  directors  as  between  the  bank 
and  the  party  dealing  with  it,  with  knowledge,  the  agent  is 
excused;  and  the  bank  held  responsible.  The  directors  are,  in 
such  cases,  personally  responsible.  The  loss  does  not  fall 
on  the  bank. 

It  will  be  seen  that  the  position  of  a  director  in  a  banking 
corporation  is  one  of  great  importance  and  responsibility. 

The  board  should  also  understand  the  liability  of  the  bank 
to  its  depositors,  and  creditors,  as  well  as  the  character  of  de- 
positors and  borrowers. 

The  reputation  of  a  bank  is  made  up  not  only  by  the  char- 
acter and  standing  of  the  ofiicers  in  charge,  but  as  well  from 
the  character  of  its  customers. 

The  directors  should  know  that  the  class  of  business  to  be 
encouraged  by  the  bank  is  of  a  character  that  will  establish 
confidence. 

It  is  also  a  part  of  their  duty  to  become  familiar  with  the 
habits  of  its  employees;  and  if  they  discover  that  they  are 
speculating,  living  beyond  their  means,   or  have  such  habits 


88  Bank  Officers  and  Agexts.  [ch.  viii. 

as  if  knoT\'n  to  the  general  i^iiblic,  would  bring  discredit 
and  possibly  ruirmpon  Ike  bank  with  the  public,  it  is  their  duty 
to  dispense  with  such  services  at  once.  It  is  frequently  said 
as  an  excuse  for  retaining  an  officer  ^whose  habits,  if  publicly 
known,  would  bring  disgrace  upon  the  bank,  that  "  his  ability 
was  unequaled,  the  l)ank  could  not  afford  to  dispense  whh. 
him.  Xo  one  in  the  community  could  be  found  to  take  his 
place."  Such  excuses  should  never  prevent  a  director  from 
doing  his  duty  at  once  by  offering  a  resolution  to  vacate  the 
position,  and  fill  it  by  a  person  whose  character  for  honesty, 
truth,  and  morality  has  at  least  never  been  questioned.  Such 
are  some  of  the  unwritten  duties  or  implied  laws  imposed  upon 
directors  of  a  banking  corporation. 

The  directors  of  a  bank,  being  its  trustees  and  acting  in  the 
relationship  of  a  guardian  of  its  depositocrs,  must  never  be 
sweiwed  from  doing  their  whole  duty.  If  they  are  in  posses- 
sion of  facts  that  an  agent  or  employee  engaged  by  them  to 
conduct  the  affairs  of  the  bank  is  an  incompetent  person,  and 
being  incompetent  makes  losses  which  they  might  expect  by 
reason  of  this  incompetency,  they  have  ^not  fully  performed 
their  duty.  They  have  been  guilty  of  negligence,  which  may 
be  of  such  a  degi-ee  as  to  be  defined  as  gross  negligence. 

The  responsibility  of  conducting  a  banking  corporation  is  too 
frequently  given  over  to  the  manager,  president,  or  cashier  of 
the  bank.  It  does  not  always  abide  "with  the  president  to  make 
the  bank  a  success,  or  prevent  its  ruin  and  collapse. 

If  the  directors  do  their  duty,  success  may  be  easily  attained 
or  failure  prevented. 

Directors  should  have  compensation  for  their  seiwices  and 
may  vote  themselves  reasonable  pay  for  services  performed,  if 
•authorized  by  the  stockholders,  and  charge  fhe  same  to  expense; 
and  should  be  held  responsible  for  the  failure  of  the  bank, 
where  it  is  shown  that  by  reasonable  diligence  and  attention 
to  their  duties  it  could  have  been  by  their  actions  j)revented. 

§  79.  Directors  of  national  banks. 

The  sections  of  the  Revised  Statutes  of  the  United  States 
relating  to  the  election,  qualification,  and  other  duties,  powers, 
and  limitations  of  directors  in  a  national  bank,  are  as  follows: 


CH.  viii.]  Banking.  89 

Election  of  directors. 

Section  5145.  The  affairs  of  each  association  shall  be  man- 
aged by  not  less  than  five  directors,  who  shall  be  elected  by  the 
shareholders  at  a  meeting  to  be  held  at  any  time  before  the 
association  is  authorized  by  the  Comptroller  of  the  Currency 
to  commence  the  business  of  banking;  and  afterward  at  meet- 
ings to  be  held  on  such  day  in  January  of  each  year  as  is  speci- 
fied therefor  in  the  articles  of  association.  The  directors  shall 
hold  office  for  one  year,  and  until  their  successors  are  elected 
and  have  qualified. 

Qualifications  of  directors. 

Section  5146.  Every  director  must,  during  his  whole  term 
of  service,  be  a  citizen  of  the  United  States ;  and  at  least  three- 
fourths  of  the  directors  must  have  resided  in  the  State,  Terri- 
tory, or  District  in  which  the  association  is  located,  for  at 
least  one  year  immediately  preccdina:  their  election,  and  must 
be  residents  therein  during  their  continuance  in  office.  Every 
director  must  own,  in  his  own  right,  at  least  ten  shares  of  the 
capital  stock  of  the  association  of  which  he  is  a  director.  Any 
director  who  ceases  to  be  the  owner  of  ten  shares  of  the  stock, 
or  who  becomes  in  any  other  manner  disqualified,  shall  thereby 
vacate  his  office. 

Oatli  required  from  directors. 

Section  5147.  Each  director,  when  appointed  or  elected,  shall 
take  an  oath  that  he  will,  so  far  as  the  duty  devolves  on  him, 
diligently  and  honestly  administer  the  affairs  of  such  associa- 
tion, and  will  not  knowingly  violate^  nor  permit  to  be 
violated  any  of  the  provisions  of  this  title,  and  that  he  is  the 
owner  in  good  faith,  and  in  his  own  right,  of  the  number  of 
shares  of  stock  required  by  this  title,  subscribed  by  him  or 
standing  in  his  name  on  the  books  of  the  association,  and  that 
the  same  is  not  hypothecated,  nor  in  any  way  j^ledged,  as  secu- 
rity for  any  loan  or  debt.  Such  oath  subscribed  to  by  the 
director  making  it,  and  certified  by  the  officer  before  whom  it 
is  taken,  shall  be  immediately  transmitted  to  the  Comptroller 
of  the  Currency,  and  shall  be  filed  and  preserved  in  his  office. 


90  Baxk  Officers  and  Agents.  [cir.  viii. 

Vacancies,  lioic  filled. 

Section  5148.  Any  vacancy  in  the  board  shall  te  filled  hy 
appointment  by  the  remaining  directors,  and  any  director  so 
ajjpointed  shall  hold  his  place  until  the  next  election. 

Proceedings  ivhere  no  election  is  held. 

If  from  any  canse,  an  election  of  directors  is  not  made  at  the 
time  appointed,  the  association  shall  not  for  that  cause  be  dis- 
solved, but  an  election  may  be  held  on  any  subsequent  day, 
thirty  days'  notice  thereof  in  all  cases  having  been  given  in  a 
newspaper  published  in  the  city,  town,  or  county  in  which  the 
association  is  located;  and  if  no  newspaper  is  published  in  such 
city,  town,  or  county^  such  notice  shall  be  published  in  a  news- 
paper published  nearest  thereto.  If  the  articles  of  association 
do  not  fix  the  day  on  which  the  election  shall  be  held,  or  if  no 
election  is  held  on  the  day  fixed,  the  day  for  the  election  shall 
be  designated  by  the  board  of  directors  in  their  by-laws,  or 
otherwise;  or  if  the  directors  fail  to  fix  the  day,  shareholders 
representing  two-thirds  of  the  shares  may  do  so. 

The  president  of  the  hoard  must  he  a  director. 

Section  5150.  One  of  the  directors,  to  be  chosen  by  the  board, 
shall  be  the  president  of  the  board. 

A  married  woman,  where  the  laws  of  the  State  permit  her  to 
assume  the  obligations  of  a  stockholder,  may  also  be  a  director. 
All  the  directors  may  be  women. 

The  Comptroller  of  the  Currency  requires  that  a  director 
must  qualify  by  taking  the  oath  prescribed  by  the  department, 
which  oath  when  taken  must  be  filed  with  the  Comptroller. 

§  80.  Directors  of  State  bank. 

The  statute  of  the  State  wherein  the  bank  is  incorporated 
provides  for  the  qualifications  and  number  of  directors  re- 
quired, setting  forth  the  mode  of  their  election,  and  fixing  the 
term  of  ofiice;  and  also  prescribes  their  duties,  powers,  and 
limitations;  and  for  Avhat  causes  they  may  be  removed  from 
ofiice. 

A  statute  defining  the  duties,  powers,  and  limitations  of  the 
directors,  is  construed  as  a  mandatory  statute  and  not  directory. 

The  directors  derive  all  their  powers  from  the  statute  and 
the  charter  of  the  corporation;  and  have  no  powers  other  than 


cii.  VIII.]  Baxkiis^g.  91 

the  exi^ressed  provisions  of  law,  and  the  charter,  together  with 
snch  implied  and  incidental  powers  as  are  necessary  to  carry  out 
the  purposes  of  the  corporation. 

"  The  Lest  settled  conclusion  of  judicial  opinion  in  this 
country  is  that  they  are  general  agents  "  of  the  corporation.^ 

§  81.  Directors'  meetings. 

After  the  directors  have  qualified,  where  the  laws  require 
such  qualification,  they  are  then  authorized  to  carry  into  effect 
their  duties  and  powers  and  the  purposes  of  the  corporation. 
Their  meetings,  if  the  time  and  place  are  provided  for  in  the 
charter,  must  be  held  at  such  time  and  place. 

If  the  charter  does  not  provide  for  the  time  and  place  of 
meeting,  the  statute  of  the  State  generally  designates  the 
manner  of  calling  meetings. 

In  the  absence  of  a  statute,  charter,  or  by-law,  providing  the 
time  and  place  of  holding  directors'  meeting.3,  they  may  be  held 
without  the  limits  of  such  State  if  desired.^ 

§  82.  Place  of  meeting  and  notice. 

When  by-laws  have  been  adopted  by  the  bank  providing  how, 
when,  and  where  meetings  shall  be  held,  a  meeting  held  by  the 
directors,  at  a  time  and  place  in  contravention  of  the  by-laws, 
is  illegal. 

Notice. 

In  the  absence  of  a  by-law,  a  personal  notice  of  the  meeting 
should  be  given  to  each  member  of  the  board.  Personal 
notice  may  be  waived.^ 

Where  the  statute  or  by-laws  prescribe  the  mode  or  manner 
of  notice,  a  failure  to  give  such  notice  renders  the  meeting 
illegal. 

It  has  been  held,  however,  in  the  case  of  American  Ex.  Xat. 
Bank  v.  First  Xat.  Bank,  82  Fed.  Rep.  961,  that  if  the  directors 
of  the  bank  have  long  joursued  an  established  custom  of  holding 
meetings  and  transacting  business  at  the  bank,  during  business 

iGl  Pa.  St.  202.  48  Vt.  266,  86  1,5  Nev.  283;  Hanna  r.  Co..  23  Ohio 
111.  220;  24  Conn.  .591.  St.  622. 

2  Thompson  r.  Co.,  58  Miss.  423;  3  Bank  v.  McCarthy,  55  Ark.  473, 

Lead  Co.  r.  Reinhard,  114  Mo.  218,  18  S.  W.  759;  B.  B.  R.  Co.  v.  Buck, 
21  S.  W.  488;  Bassett  v.  Mining  Co.,       68   Me.   81;   Library  v.  Association, 

173  Pa.  St.  30. 


92  Baxk  Officers  and  Agekts.  [ch.  viii. 

hours,  whenever  a  sufficient  number  ^vere  present,  the  custom 
wouhl  carry  with  it  a  standing  notice  to  each  director;  and 
enable  those  present  to  proceed  in  the  absence  of  a  controlling 
bv-law  or  statute.  The  notice  is  not  waived  except  in  the 
absence  of  a  controlling  bv-law  or  the  statute. 

§  83.  Number  necessary  to  constitute  a  quorum. 

A  majority  of  the  board  of  directors  in  all  the  States,  possibly 
with  the  exception  of  the  State  of  Oregon,  is  necessary  to 
constitute  a  quorum  for  the  transaction  of  business.  The  gen- 
eral rule  is,  that  a  majority  of  the  quorum  has  the  power  to 
bind  the  corporation.'* 

Where  the  statute  fixes  the  number  necessary  to  transact 
business,  any  action  taken  by  a  less  number  will  be  illegal 

§  84.  Directors  of  national  banks  must  act  as  a  unit. 

The  court  in  the  case  of  Xational  Bank  v.  Drake,  35  Kans. 
564,  in  the  discussion  of  the  question  as  to  the  power  conferred 
upon  the  directors  acting  for  a  national  bank,  says:  ''  The  only 
powers  conferred  by  statute  upon  the  directors  of  a  national 
bank  are  vested  in  them  as  a  board,  and  when  acting  as  a  unit, 
and  therefore  the  majority  of  the  individual  members  of  the 
board  acting  separately  and  singly  is  not  the  assent  of  the  bank, 
and  is  not  binding  upon  it." 

§  85.  Board  electing  officers  of  bank. 

The  board  of  directors  is  generally  empowered  by  hiw,  and 
it  becomes  its  duty  to  elect  the  officers  of  the  corporation,  and 
employ  clerks,  and  agents  of  the  corporation,  fixing  their 
salaries  or  compensation. 

If  the  statute  or  charter  does  not  authorize  the  board  of 
directors  to  choose  or  elect  the  officers,  the  power  lies  and  is 
vested  in  the  stockholders.^ 

§  86.  Vacancies  in  the  board. 

Where  the  statute  does  not  expressly  provide  otherwise,  the 
law  implies  that  a  director  may  hold  his  office  after  the  term 

4  Ten  Evck  r.   Pontiac,   etc.,   Co.,  5  Beardsley  r.  Johnson,  121  N.  Y. 

74  Mich.  226,  41  N.  W.  905 ;  Ho^'t  224,  24  N.  E.  .380 ;  Re  A.  A.  G.  Iron 

r.    Thompson,    Executor,    19    N.    Y.  Co.,  03  N.  J.  Law  168-357,  41  Atl. 

207.  931. 


cir.  VIII.]  BAXKi^fG.  93 

for  Yvliicli  lie  was  elected,  aud  until  the  election  and  qualifica- 
tion of  Kis  successor. 

Where  vacancies  occur  in  the  board,  they  must  be  filled  as 
provided  for  bj  the  statute.  In  the  absence  of  a  charter  or 
statutory  provision  or  a  by-law,  especially  giving  the  power 
to  the  board  to  fill  a  vacancy,  it  can  be  filled  only  by  the  stock- 
holders. 

§  87.  Duties  which  cannot  be  delegated. 

A  duty  imposed  upon  the  board  of  directors  by  the  statute 
to  be  personally  performed  cannot  be  delegated  to  a  com- 
mittee or  agent  of  the  bank.*" 

They  may  delegate  certain  powers  by  the  enactment  of  a 
by-law  or  a  resolution,  and  confer  thereby  executive  authority 
to  a  committee  or  an  agent ;  but  where  the  statute  or  charter 
of  the  corporation  specifically  defines  an  act  or  duty  to  be  per- 
formed by  the  directors,  they  have  no  power  to  set  aside  the 
law,  and  appoint  agents  to  do  the  very  things  Avhich  the  law 
requires  them  personally  to  perform. 

The  general  and  well  established  rule  is,  that  all  corporate 
contracts  are  to  be  made  by  the  directors. 

The  directors  of  a  corporation  are  its  chosen  representatives, 
and  as  such  they  constitute  the  corporation,  to  all  purposes  of 
dealing  w^th  others.  What  they  do  TNdthin  the  scope  of  the 
objects  and  purposes  of  the  corporation,  the  corporation  does.'^ 

§  88.  Cannot  delegate  authority  to  make  discounts. 

They  cannot  delegate,  to  an  officer  of  the  bank,  the  author- 
ity to  make  discounts,  generally;  that  is,  give  unlimited  power 
to  an  officer  to  loan  the  funds  of  the  bank  to  any  person  or 
persons  who  might  make  application  therefor. 

It  may  be  stated,  that  this  inalienable  duty,  Avhicli  is  vested 
in  the  board  of  directors,  and  which  neither  by  a  by-law  nor 
resolution,  can  be  generally  delegated  to  another,  is  a  duty 
which  is  more  frequently  neglected  by  the  board  of  directors 
than  any  other  duty  imposed  by  law  upon  them  personally  to 
perform. 

The  board  of  directors  themselves  are  frequently  ignorant 
of  the  law,  and  their  duty  in  this  respect ;  and  just  as  fre- 
quently, the  manager  or  cashier  of  a  bank  assumes  that  the 

«  T.vons     /-.     Jerome,     20     Woml.  7  ^rnvnard   r.    Firemans'   Fund   &, 

(X.  Y.)  484.  .  Ins.  Co.,  34  Cal.  48. 


94  Bank  Officers  and  Agents.  [ch.  viii. 

right  to  make  loans  and  disconnts  for  the  bank  is  an  implied 
authority,  and  the  power  vests  in  him  as  a  matter  of  custom  or 
right. 

Following  the  general  rule,  that  all  corporation  contracts  are 
to  be  made  by  the  board  of  directors,  every  borrower  of  the 
bank's  funds  who  enters  into  a  written  promise  to  pay  the 
bank  a  sum  of  money  loaned  by  it  to  him,  has  a  contract  which 
must  be  autlu  rized,  or  ratified  by  the  board  of  directors. 

Upon  examination  of  the  principle,  and  reasons  for  the  rule, 
it  is  found  to  be  a  safe  and  sensible  law. 

The  directors  are  held  by  a  majority  of  the  courts,  at  the 
present  time,  to  be  the  trustees  of  the  funds  and  property  of 
the  banking  corporation ;  and  such  funds  cannot  be  loaned  nor 
invested  without  authority  emanating  from  the  board  of  trus- 
tees, who  are  held  responsible  for  them. 

The  loans  and  discounts  may  be  authorized,  and  the  execu- 
tive part  of  the  business  performed  by  the  cashier,  president, 
or  other  agent  of  the  bank ;  but  the  officer  has  no  inherent  au- 
thority in  the  absence  of  a  resolution  or  direction  coming 
from  the  board  of  directors,  to  make  loans  to  any  person  or 
persons. 

In  xvTew  York  in  the  case  of  Bank  Commissioner  v.  Bank  of 
Buffalo,  6  Paige  Chancery  (N.  Y.)  497,  it  is  held,  that  where 
the  board  of  directors  authorized  their  cashier  or  president, 
or  any  other  officer  of  the  bank,  to  make  loans  and  discounts 
in  his  discretion,  without  having  the  same  passed  upon  form- 
erly at  a  meeting  of  the  board,  the  corporation  is  liable  for  a 
violation  of  its  charter. 

The  directors  may,  by  a  single  resolution,  authorize  the 
cashier  to  make  loans  to  a  certain  person,  firm  or  corporation, 
up  to  a  certain  amount,  and  in  this  manner  delegate  their 
authority;  but  beyond  this  it  has  been  held,  that  a  general 
resolution  passed  by  the  board  of  directors,  authorizing  the 
cashier  to  discount  notes  and  make  loans  generally,  to  those 
making  application,  and  desiring  to  borrow,  is  not  within  their 
power  or  authority. 

If  loans  have  been  made  by  an  officer  of  the  bank  without 
authority  obtained  from  the  board  of  directors,  they  may 
afterward  be  ratified  by  the  board,  and  such  ratification  legal- 
izes the  act. 


cir.  VIII.]  Banking.  95 

Discounting  notes  is  the  principal  business  of  a  bank;  its 
resources  almost  entirely  consists  of  its  bills  receivable.  The 
deposits  of  the  bank  are  placed  with  the  bank  by  the  de- 
positors upon  an  implied  theory,  that  when  invested  or  loaned, 
they  are  to  be  loaned  and  invested  by  the  trustees  or  directors 
with  reasonable  care  and  diligence.  And  the  making  of  the 
investments  for  the  bank  is  a  duty  and  an  inalienable  function 
belonging  to  the  board  of  directors. 

§  89.  Cannot  delegate  statutory  duties. 

The  directors  cannot  delegate  any  statutory  duties  imposed 
upon  them  by  the  law  to  perform.  "Where  they  are  required 
to  make  a  report  to  an  officer  of  the  State  at  periods  named 
by  the  statutes,  as  to  the  condition  of  the  affairs  of  the  bank, 
and  are  required  to  prepare  a  statement  of  its  condition,  they 
cannot  delegate  the  authority  and  substitute  a  statement  made 
by  the  officers  of  the  bank;  and  where  such  a  statement  is  re- 
quired of  them,  they  must  make  an  examination  into  the 
affairs  and  conditions  of  the  bank,  and  upon  the  examination 
base  their  statement  and  report. 

Where  they  are  required  by  law  to  make  a  report  of  the 
condition  and  affairs  of  the  bank  to  an  officer  of  the  State,  or 
for  publication,  and  they  fail  to  inform  themselves  of  the 
condition  of  the  bank,  and  make  a  report  which  is  false,  they 
are  held  personally  liable  to  the  stockholders  and  creditors  of 
the  bank. 

§  90.  Powers  and  limitations. 
Power  to  sell  property  of  bank. 

The  power  to  sell  the  property  both  real  and  personal  of  the 
corporation,  when  not  expressly  vested  in  the  stockholders  by 
the  statute,  is  one  which  the  directors  alone  can  carry  into 
effect.  This  is  done  by  a  resolution  duly  passed  at  a  meeting- 
called  for  that  purpose,  or  at  a  regular  meeting  when  a  sale 
of  the  property  of  the  corporation  may  be  authorized. 

The  resolution  of  authority  should  describe  the  property  to 
be  sold,  and  the  consideration  to  be  received  by  the  bank.  It 
should  also  direct  that  the  president  and  secretary  of  the  cor- 
poration, in  the  name  of  the  corporation,  be  authorized  to 
execute  the  conveyance.      The  conveyance  should  show  when 


96  Bank  Oflicees  aicd  Agents.  [cii.  viii. 

executed  that  the  sale  was  duly  authorized  by  the  hoard  of 
directors,  and  that  the  instrument  of  conveyance  was  directed 
to  be  made,  by  the  officers,  for  the  corporation.  The  power  to 
sell  and  convey  property  of  the  bank  corporation  is  vested 
in  the  board  of  directors  only.^ 

§  91.  Limitation  of  power. 

No  power. 

They  have  no  power  to  increase  or  diminish  the  capital 
stock  of  the  bank  in  any  way  except  as  expressly  authorized 
by  the  law. 

The  shareholders  alone  have  the  power  to  order  an  increase 
of  the  capital  stock.^ 

§  92.  Assessment  of  shares  —  National  banks. 

The  directors  cannot  order  an  assessment  upon  the  shares 
of  stock  in  a  national  banking  corporation,  for  impairment  of 
capital.     The  assessment  must  be  made  by  the  stockholders.^'* 

§  93.  Directors  cannot  give  away  property  of  bank. 

The  directors  have  no  power  to  give  away  any  portion  of 
the  bank's  property,  but  the  stockholders  by  a  unanimous 
action  may  do  so.^^ 

§  94.  Cannot  settle  with  cashier  for  his  deficits. 

Tliey  have  no  power  or  authority  to  make  a  settlement  with 
the  cashier  whose  accounts  exhibit  a  deficit  in  the  funds;  but 
the  fraudulent  conduct  of  the  director  of  the  bank  would  not 
annul  nor  make  it  void  unless  the  cashier  was  also  guilty  of 
fraud.i- 

§  95.  Assuming  debts  of  others. 

They  have  no  power  to  assume  the  debt  of  a  third  person, 
except  in  case  of  urgent  necessity. 

In  the  discussion  of  this  question  the  court  in  the  case  of 
Stark  Bank  v.  U.  S.  Pottery  Co.,  34  Ver.  144,  says: 

"  The  directors  had  no  such  power  unless  under  the  circum- 
stances there  M'as  an  urgent  necessity  of  doing  it  in  order  to 

sCasliwiler  v.  Willis,  3.3  Cal.  11.  ii  Frankfort  Bank  v.  Johnson,  24 

:»  Kidmand   r.  Boman,  ,58  111.  444.  Me.  490. 

10  Rev.  St.  U.  8.,   §  .5205;   Hulilt  12  Frankfort  Bank  r.  .John.son.  24 

r.  Bell,  85  Fed.  Rep.  98.  Me.  490. 


CH.  VIII.]  Banking.  97 

save  the  credit  of  the  company,  and  enable  them  to  go  along 
with  their  business.  If  there  was  such  necessity  making  it 
for  the  interest  of  the  company  to  enter  into  such  arrange- 
ment, it  was  within  the  scope  of  their  powers  as  directors, 
otherwise  not."^^ 

§  96.  Cannot  take  advantage  of  position  for  profit. 

The  directors  are  precluded,  by  the  acceptance  of  the  trust, 
from  making  any  use  of  their  power,  or  of  the  corporate  prop- 
erty for  their  o^vn  advantage.^* 

The  stockholders  confer  the  trust  power  upon  the  board  of 
directors,  and  this  power  must  not  be  used  with  a  purpose  to 
injure  or  destroy  that  interest. ^^ 

Courts  of  equity  will  not  permit  directors,  in  the  exercise  of 
their  duty  as  such,  to  make  a  profit  for  themselves  to  the  ex- 
clusion of  the  other  stockholders.^® 

It  is  a  well  settled  principle  of  law  that  where  a  director 
of  a  bank  loaned  the  money  of  the  bank,  and  took  from  the 
borrower  a  note  running  to  the  bank  for  the  principal  sum 
loaned,  at  a  rate  of  interest  therein  stipulated,  but  at  the  same 
time,  and  as  a  part  of  the  same  transaction,  made  an  agree- 
ment with  the  borrower  to  permit  him  to  participate  in  the 
profits  of  a  purchase  and  sale  of  certain  lands,  it  is  held  that 
the  director  will  not  be  permitted  to  retain  for  himself  the 
profits  thus  contracted  for,  but  that  such  profits  must  be  sur- 
rendered to  the  bank,  to  be  participated  in  by  all  the  stock- 
holders. Xo  stockholder  has  the  right  to  use,  in  any  manner, 
any  portion  of  the  funds  of  the  bank  to  the  advantage  of  him- 
self and  as  against  the  rights  of  the  other  stockholders. 

The  directors  of  a  corporation  are  its  chosen  representatives, 
and  constitute  the  corporation  for  all  purposes  of  dealing 
with  others.  All  acts  done  within  the  scope,  purpose,  and 
object  of  the  corporation,  by  the  directors,  the  corporation 
does,  and  are  binding.  The  corporation  is  bound  by  the  acts 
of  directors  in  whatever  they  may  do,  if  done  in  good  faith 
and  without  fraud,  upon  their  rights. 

13  Seeberger  r.  McCormick,  178  15  Wright  v.  Oriville  Mining  Co., 
111.  404.  40  Cal.  20. 

14  Wickersham  v.  Crittenden,  'j3  16  Oakland  Bank  of  Savings  v. 
Cal.  17.  Wilcox,  60  Cal.  126,  93  Cal.  29. 


98  Bank  Officers  and  Agents.  [cii.  viii. 

The  directors  of  a  bank  are  prohibited  from  making  an 
illegal  loan,  or  becoming  an  accommodation  endorser  for  the 
bank.  But  where  snch  transactions  a]>]:)ear  to  be  regnlar,  and 
within  the  authority  of  the  bank,  third  parties  acting  with 
the  bank,  withont  notice  of  a  willful  or  wrongful  purpose,  the 
bank  cannot  avoid  its  liability. 

But  where  they  borrow  money,  supposedly  for  the  use  of 
the  bank  but  with  the  intention  to  use  it  for  a  different  pur- 
pose, the  lender  being  aware  of  their  intent  and  purpose,  the 
bank  will  be  relieved  from  such  indebtedness. 

§  97.  Discretionary  power. 

It  is  held  that  the  directors  of  a  national  bank  have  dis- 
cretionary power,  and  it  is  left  within  their  sound  judgment 
and  discretion  in  the  matter  of  requiring  an  officer  of  the  bank 
to  gnve  bond. 

The  same  opinion  holds  that  certain  special  circumstances 
may  arise  making  them  personally  liable  if  they  fail  to  require 
bonds.^^ 

§  98.  Safe  rule. 

The  only  safe  rule  is  to  require  bonds  from  all  the  officers 
and  clerks  (at  least  those  entrusted  with  the  moneys)  of  a 
bank,  holding  responsible  positions.  It  would  seem  to  be  a 
part  of  the  duty  imposed  upon  the  directors,  and  not  a  dis- 
cretionary power  to  be  used  at  their  election.  It  has  been  too 
frequently  discovered  after  a  bank  has  suffered  through  neg 
ligent  or  criminal  acts  of  its  officers,  that  the  opinion  or  dis- 
cretion of  the  directors  was  worthless. 

§  99.  Releasing  debt. 

The  board  of  directors  may  release  a  debt  owing  to  the 
bank,  if  by  doing  so  it  can  be  sho\vTi  that  it  is  clearly  an  ad- 
vantage to  the  corporation. 

Touching  the  same  question,  it  has  been  held,  that  where 
an  officer  or  an  employe  is  in  defaut  to  the  bank,  the  directors 
may  settle  with  him  upon  such  terms  as  will  best  subserve  the 
interests  of  the  bank.^® 

17  Robinson  v.  Hall,  63  Fed.  Rep.  Frankfort  Bank  >:  Johnson,  24  Me 
222.  490. 

18  Jones  V.  Johnson,  86  Ky.  530; 


en.  VIII.]  Banking.  99 

§  100.  Releasing  subscriber  to  capital  stock. 

The  board  of  directors  have  no  power  to  release  a  subscriber 
to  the  capital  stock  of  the  corporation;  but  if  they  can  make 
any  arrangement  vith  him  in  settlement  without  loss  to  the 
bank  or  its  creditors,  it  would  seem  that  they  would  have  the 
power  to  do  so. 

The  Supreme  Court  of  the  State  of  Illinois,  in  the  case  of 
Mcl^ulta  V.  Corn  Belt  Bank,  164  111.  427,  in  discussing  this 
question,  says : 

"  The  effect  of  the  resolution  and  what  was  done  under  it 
was  to  release  the  original  subscribers  to  the  capital  stock 
from  the  obligation  to  pay  their  subscription.  *  *  *  It 
has  been  settled  by  very  numerous  decisions  that  the  directors 
of  a  company  are  incompetent  to  release  an  original  subscriber 
to  its  capital  stock,  or  to  make  any  arrangement  with  him  by 
which  the  company,  its  creditors,  or  the  State,  shall  lose  any 
of  the  benefits  of  liis  subscription.  Every  such  arrangement  is 
regarded  in  equity,  not  merely  as  ultra  vires,  but  as  unjust  to 
the  other  stockholders,  and  to  the  creditors  of  the  company," 

§  101.  Securing  preferred  creditor. 

Where  a  creditor  of  a  bank  has  established  his  debt  as  a 
preferred  claim,  the  board  of  directors  may  dispose  of  prop- 
erty to  satisfy  or  secure  such  a  creditor.^^ 

§  102.  Removing  employes. 

The  board  of  directors  have  the  power  to  remove  an  officer 
or  employe  of  the  bank,  for  sufficient  cause,  at  any  time. 
But  if  such  employe  is  removed  from  any  State  bank  upon 
a  contract  of  employment  for  a  fixed  period  of  time,  without 
a  good  and  sufficient  cause,  such  employe  may  hold  the  cor- 
poration liable. 

In  the  case  of  Gabriel  v.  Bank  of  Suisun,  145  Cal.  266, 
the  Supreme  Court  says : 

"  AVhere  after  the  expiration  of  an  agreement  respecting 
wages  and  term  of  service,  the  parties  continue  the  relation 
of  master  and  servant,  they  are  presumed  to  have  renewed  the 
agreement  for  the  same  wages  and  term.  The  Bank  of  Suisun 
employed  a  bookkeeper,  for  the  year  1898,  at  an  annual  salary 

19  Stevens  r.  Hill,  29  Me.  133;  Parker  r.  Carolina  Savings  Bank,  oS 
S.  C.  583. 


100  Bank  Officees  and  iVoENTs.  [ch. 


VIII. 


of  $1,200,  payable  monthly,  and  be  continued  in  tbat  emplov- 
ment  during  tbe  first  two  montbs  of  1899.  He  was  tben 
discharged  and  be  sued  tbe  bank  for  $1,000,  tbe  balance  of 
bis  salary  for  tbe  year.  There  was  a  judgment  of  tbe  Su- 
perior Court  for  the  amount  against  the  bank,  and  tbe  Supreme 
Court  has  finally  decided  tbe  case  against  the  bank,  saying: 
*  Tbe  presumption  arises  tbat  tbe  employment  was  renewed 
for  the  same  wages  and  term  as  for  the  previous  term.'  " 

Under  tbe  provisions  of  tbe  Xational  Banking  Act,  tho 
board  of  directors  may  remove  tbe  officers  named  in  said  act, 
without  cause,  at  any  time.  A  provision  of  said  act,  reads 
as  follows: 

Fifth.  "  To  elect  or  appoint  directors,  and  by  its  board  of 
directors  to  appoint  a  president,  vice-president,  cashier  and 
other  officers,  define  their  duties,  require  bonds  of  them,  and 
fix  the  penalty  thereof,  dismiss  such  officers  or  any  of  them  at 
pleasure,  and  appoint  others  to  fill  their  places." 

The  court,  in  the  case  of  Taylor  v.  Hutton,  43  Barb.  195, 
in  discussing  this  provision  of  the  law,  says: 

"  I  think  this  construction  of  the  act,  as  having  reference 
to  tbe  directors  to  do  these  things,  and  not  to  tbe  stockholders, 
is  quite  plain. 

"  It  does  not  seem  to  be  at  all  necessary  tbat  any  by-laws 
should  be  adopted,  before  a  president  may  be  chosen  or  re- 
moved and  another  appointed  in  his  place.  This  power  is 
expressly  given  to  the  board,  irrespective  of  any  by-laws,  both 
by  the  articles  of  association  and  by  the  act  of  Congi-ess. 
Besides,  it  is  a  power  tbat  might  be  required  to  be  exercised 
or  that  it  might  be  expedient  to  exercise,  prior  to  tbe  adoption 
of  any  by-laws." 

The  board  of  directors  derive  this  discretionary  power  to 
remove  an  officer  elected  by  them  only  when  such  power  is 
conferred  upon  them  by  law. 

g  103.  Courts  declare  that  directors  are  trustees. 

The  leading  authorities  in  discussing  the  nature  of  the  office 
of  director  in  a  banking  corporation  hold,  tbat  their  position 
is  in  the  nature  of  a  trust,  and  they  are  held  to  a  strict  account. 
Tbe  nature  of  tbe  business  over  which  they  preside  clearly 
establishes  this  relationship.     They  owe  a  duty  to  the  public. 


cii.  VIII.]  .  Ba:^king.  101 

to  the  depositors,  and  to  the  stockholders,  and  they  are  not 
permitted  by  law  to  acquire  any  interest  adverse  to  the  stock- 
holders of  the  bank. 

As  previously  stated  they  cannot  make  a  profit  ont  of  the 
business  and  withhold^  a  division  from  the  other  stockholders. 

The  rule  of  law  relating  to  the  duties  of  a  trustee  is  well 
established,  that  he  cannot  in  any  manner  make  a  profit  from 
property  held  by  him  in  trust. 

The  law  will  not  permit  a  trustee  to  prove  "  an  honest  in- 
tent." 

The  Supreme  Court  of  the  State  of  California,  in  the  case 
of  the  Farmers  and  Merchants  l^ational  Bank  of  Los  Angeles 
V.  John  G.  Downey,  53  Cal.  466,  where  it  was  shown  that  one 
of  the  directors  of  a  bank  loaned  the  moneys  of  the  bank,  and 
took  from  the  borrowers  a  note  running  to  the  bank  for  the 
principal  sum  loaned,  but  at  the  same  time  and  as  a  part  of 
the  same  transaction,  made  an  agreement  with  the  borrowers, 
that  they  should  permit  him  to  participate  with  them  in  the 
])rofits  of  a  purchase  and  sale  of  certain  lands, —  held 
that  the  director  could  not  be  permitted  to  retain  for  himself 
the  profits  thus  contracted  for,  but  must  surrender  them  to 
the  bank  to  be  participated  in  by  all  the  stockholders.  The 
court  in  discussing  their  relationship  to  the  bank,  says  "  He 
was  its  trustee."  The  court  again  says,  "  The  directors  are 
the  trustees  and  are  managing  partners,  and  the  stockholders 
are  the  cestuis  que  trust,  and  have  a  joint  interest  in  all  the 
property  and  effects  of  the  corporation,  and  no  injury  that  the 
stockholders  may  sustain  by  a  fraudulent  breach  of  trust  can, 
upon  the  general  principles  of  a  Court  of  Equity,  be  suffered 
to  pass  without  a  remedy." 

§  104.  Misappropriating  bank  funds. 

A  director  of  a  bank  cannot  use  or  appropriate  any  of  the 
funds  of  the  bank,  to  retain  or  pay  an  attorney  to  defend  him 
in  a  suit  brought  by  a  stockholder  against  him.^*^ 

§  105.  Rights  of  directors. 
May  horroiv  money  from  hank. 

The  law  does  not,  unless  by  special  provision,  refuse  to  a 
director  the  privilege  of  borrowing  money  from  the  bank  over 

20  Percy  i:  Millandon,  3  La.  .568. 


102  Ijaxk  Officers  and  Agents.  [ch.  vrii. 

Avliich  he  presides.  The  statutes  of  many  States  have,  how- 
ever, enacted  inhibitive  provisions,  upon  this  subject,  in  so  far 
as  savings  banks  are  concerned,  and  will  not  permit  a  director 
either  directly  or  indirectly  to  borrow  from  his  own  bank. 
The  Xational  Banking  Law  permits  a  director  to  borrow  as 
any  other  customer,  but  specifically  provides,  that  no  person 
shall  be  permitted  to  borrow  to  exceed  one-tenth  of  its  capital 
actually  paid  in. 

Where  there  is  no  prohibition  to  borrow,  his  application  must 
be  treated  as  the  application  of  a  stranger,  and  he  is  excluded 
from  using  his  influence  to  secure  the  loan  with  the  other  mem- 
bers of  the  board;  and  from  voting  upon  the  application.  It 
is  not  necessary  that  he  should  withdraw  his  presence  from  the 
room,  but  he  must  take  no  part  or  action  relating  thereto. 

AVhen  the  law  prohibits  a  loan  to  a  director,  and  one  is 
made  in  violation  of  the  charter  or  statute,  the  bank  may 
collect  the  same. 

In  the  case  of  Britain  v.  Oakland  Bank  of  Savings,  134  Cal. 
282,  the  court  in  discussing  this  question  says: 

"At  the  time  of  the  transaction  between  Bowman  and  the 
bank  he  was  a  director  in  the  bank.  The  Civil  Code  declares 
that  no  director  or  officer  of  any  savings  and  loan  corporation 
must  directly  or  indirectly  for  himself  or  as  the  partner  or  agent 
of  others,  borrow  any  of  the  deposits  or  other  funds  of  such 
corporation.  And  declares  that  the  office  of  any  director  or 
officer,  who  acts  in  controvention  of  this  provision  of  the  law, 
shall  immediately  thereupon  become  vacant.  *  ^  *  Xhe 
obvious  purpose  of  this  section  of  the  code  invoked  and  relied 
upon  was  to  protect  savings  banks  and  their  depositors.  To 
hold  therefore,  that  if  the  deposits  or  funds  of  such  a  bank 
should  be  borrowed  by  any  of  its  officers,  directly  or  indirectly, 
no  action  could  be  maintained  by  the  bank  to  recover  the 
money,  would  often  work  a  great  injustice  and  wrong.  The 
bank  therefore  could  have  sued  Bowonan  to  recover  back  the 
money  loaned." 

If  a  loan  or  discount  is  knowingly  made  for  the  benefit  of  a 
director  of  a  bank  or  of  a  firm  with  which  he  is  connected  in 
interest  or  as  a  co-partner,  it  is  held  to  be  a  loan  or  discount 
to  such  director  within  the  intent  and  moaning  of  the  statute 


CH.  VIII.]  Banking.  103 

limiting  the  amount  of  loans  and  discounts  to  directors  of 
banks.^^ 

Some  of  the  States  have  enacted  laws  limiting  the  amount 
which  may  be  loaned  by  a  bank  to  any  one  person,  firm,  or  cor- 
poration ;  and  many  of  the  States  have  enacted  laws  pro- 
hibiting officers  and  directors  of  savings  banks  from  directly 
o:*  indirectly  borrowing  any  of  the  funds  of  such  bank. 

The  statute  of  California  is  silent  upon  the  rights  of  directors 
to  borrow  from  commercial  banks  over  which  they  preside. 

A  director  has  the  right  to  examine  the  books  of  the  corpora- 
tion at  any  time,  and  cannot  be  excluded  by  a  by-law  which  may 
deny  this  right  to  him.  The  right  is  a  personal  rights  belong- 
ing to  his  office ;  and  a  by-law,  which  may  attempt  to  fix  a  time 
for  the  examination  of  the  books  of  the  corporation  in  so  far  as 
it  affects  the  rights  of  a  director  is  unconstitutional,  and  invalid. 
If  the  right  is  denied  him  by  the  other  directors,  or  officers  of 
the  bank,  to  examine  the  books,  he  may  apply  to  the  court  for  a 
writ  of  mandamus.^^ 

§  106.  Notice  to  the  board. 

The  general  rule  as  to  what  constitutes  notice  to  the  board 
may  be  stated  as  follows: 

The  board  as  such  is  charged  with  notice  of  a  matter  when, 
assembled  at  a  meeting,  and  a  member  or  other  person  discloses 
or  mentions  a  matter.  The  fact  that  they,  as  a  board,  do  not 
at  such  meeting  discuss  the  matter  presented  to  them,  makes 
no  difference.  The  matter  has  been  sufficiently  presented  when 
mentioned  at  a  meeting  and  they  are  bound  by  such  a  notice. 

If  they  have  received  notice  of  a  matter  which  should  be 
immediately  acted  upon,  and  they  fail  to  act,  and  a  loss  occurs 
to  the  bank  through  such  failure,  they  are  liable. 

The  rule  above  stated,  is  fully  supported  by  the  court  in  the 
case  of  Bank  of  Pittsburgh  v.  Whitehead,  Sproul  &  Co.,  10 
Watts  (P.  A.)  397,  where  the  court  in  discussing  the  question 
says: 

"  Publication  of  dissolution  in  a  newspaper,  taken  by  the 
officers,  and  paid  for  by  the  bank,  may  not  be  constructive 
notice  to  a  bank  which  had,   as  in  this  instance,  previously 

21  Bank  Commissioners  v.  Bank  of  22  People    r.    Throop,     12    Wend. 

Buffalo,  6  Paige,  Chy.   (N.  Y.)   497.        {X.   Y.)    183. 


104  Bai^^k  Officers  and  Agents.  [ch.  viii. 

dealt  M-ith  the  firm;  but  when  the  fact  of  dissolution,  gleaned 
from  that,  or  any  other  source,  is  stated  before  the  board  by  a 
member  of  it,  and  made  a  subject  of  conversation  during  the 
very  transaction,  it  is  impossible  to  doubt  that  the  bank  is  to  be 
affected^  because  knowledge  of  the  fact  material  to  be  known 
is  a  part  of  the  res  gestae.  There  cannot  be  a  question,  there- 
fore, that  knowledge  imparted  to  the  board,  as  was  done  here, 
by  a  director  at  a  regular  meeting,  is  notice  to  the  bank." 

§  107.  When  the  law  imputes  knowledge. 

It  is  held  by  the  Court  of  Appeals  of  the  State  of  Missouri, 
that  where  directors  have  had,  for  many  years,  complete  man- 
agement of  a  bank,  they  are  imputed  by  law  to  know  of  its  con- 
dition and  are  therefore  charged  with  knowledge  of  its 
insolvency. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
Martin  v.  Webb,  110  U.  S.  7,  says: 

"  Directors  cannot,  in  justice  to  those  who  deal  with  the 
bank,  shut  their  eyes  to  what  is  going  on  around  them.  It  is 
their  duty  to  use  ordinary  diligence  in  ascertaining  the  condi- 
tion of  its  business  and  to  exercise  reasonable  control  and 
supervision  of  its  officers.  They  have  something  more  to  do 
than,  from  time  to  time,  to  elect  the  officers  of  the  bank,  and  to 
make  declarations  of  dividends.  That  which  they  ought,  by 
proper  diligence,  to  have  known  as  to  general  course  of  busi- 
ness in  the  bank,  they  may  be  presumed  to  have  known  in  any 
contest  between  the  corporation  and  those  who  ai;e  justified 
by  the  circumstances  in  dealing  \vith  its  officers  upon  the  basis 
of  that  course  of  business." 

§  108.  Notice  to  a  director. 

The  general  rule  is  that  the  bank  has  notice  if  the  director 
receives  or  acquires  the  notice  in  his  official  capacity,  or  if  act- 
ing as  agent,  or  attorney  in  charge  of  a  matter  for  the  bank. 
His  knowledge  is,  then,  knowledge  to  the  bank. 

The  Supreme  Court  of  the  State  of  Massachusetts  holds  that 
if  a  director  of  a  bank,  who  acts  for  a  bank,  in  discounting  a 
note,  has  knowledge  that  the  note  was  procured  by  fraud,  the 
bank  is  affected  with  his  knowledge.      The  court  says: 

"  But  if  the  director  who  has  such  knowledge  acts  for  the 
bank  in  discounting  the  note,  his  act  is  the  act  of  the  bank  and 


CH.  VIII.]  Banking.  105 

the  bank  is  affected  with  his  knowledge.  A  bank,  or  other 
corporation,  can  act  only  through  its  officers,  or  other  agents. 
As  in  other  cases  of  agency,  notice  to  the  agent,  in  the  course 
of  a  transaction  in  which  he  is  acting  for  his  principal,  of  facts 
affecting  the  nature  and  character  of  the  transaction,  is  con- 
structive notice  to  the  principal."  ^^ 

Where,  however,  a  note  is  discounted  by  a  bank,  the  mere 
fact  that  one  of  the  directors  knew  the  fraud,  or  illegality,  will 
not  estop  the  bank  from  recovering.^'* 

It  is  held  in  the  case  of  National  Bank  v.  ISTorton,  1  Hill 
(N.  Y.)  572,  that  notice  of  dissolution,  published  in  a  news- 
paper, and  thus  accidentally  reaching  a  bank  director,  is  not 
equivalent  to  actual  notice  to  the  bank,  especially  where,  by 
the  provisions  of  the  charter  a  director  has  not  power  to  act 
for  the  institution,  save  in  conjunction  wnth  others.  In  dis- 
cussing the  question  of  notice,  the  court  says : 

"  He  happened  to  know  the  fact  of  dissolution^  as  a  director 
or  other  corporator  may  do,  without  perhaps  being  aware  that 
the  bank  could  be  prejudiced  by  it.  Not  having  any  intima- 
tion that  it  was  material,  it  is  too  much,  even  if  the  point  were 
in  the  case,  to  insist  on  a  presumption  that  he  ever  communi- 
cated the  fact  to  the  board.  Not  having  acquired  his  knowl- 
edge as  director,  there  is  no  room  for  presumption  either  on 
the  ground  of  duty  or  interest.  In  The  Fulton  Bank  v.  Bene- 
dict,. 1  Hall  (N.  Y.)  480,  497,  557,  the  judge  told  the  jury  that 
notice  to  a  director  who  appeared  to  have  had  charge  of  the 
business  to  which  it  related  was  not  notice  to  the  bank,  unless 
communicated  to  the  board,  or  to  the  officers  of  the  bank. 
Oakley,  J.,  said  the  charge  was  too  narrow  for  the  case;  adding, 
'  I  think  that  under  some  circumstances,  notice  to  a  director 
ought  to  charge  the  corporation,  as  where  the  director  acts  in 
any  particular  business  as  the  special  agent  of  the  bank,  as  in 
the  case  of  Bathbone.  He  was  one  of  a  committee  to  inquire 
as  to  this  very  notice,'  etc.  The  "Washington  Bank  v.  Lewis, 
22  Pick.  24,  31,  takes  the  same  view  of  a  director's  agency.  In 
the  Hartford  Bank  v.  Hart,  3  Day,  491,  5,  the  court  said,  '  The 

23  Suit  V.  Woodhall,  113  Mass.  ham,  24  Pick.  (N.  Y.)  270;  Wash- 
391  ;  Bank  of  U.  S.  v.  Davis.  2  Hill  ington  Bank  v.  Lewis,  22  Pick. 
451.  (N.  Y.)   24. 

24  Commercial   Bank    v.   Cunning- 


106  Bank  Officers  a^d  Agejn'ts,  [ck.  viii. 

directors  have  certain  powers  resulting  from  their  act  of  incor- 
poration, and  are,  for  certain  purposes,  agents,  and  their  acts, 
v.'hen  in  strict  relation  to  their  agency,  are  binding  on  the  cor- 
poration.' See  also  SteAvart  v.  Huntington  Bank,  11  Serg.  & 
Eawle,  267,  269,  and  Hajward  v.  The  PilgTim  Society,  21  Pick. 
270.  These  cases  show,  what  is  indeed  quite  plain,  that  the 
acts  of  a  director  or  other  officer  of  a  corporation,  unless  official, 
or  in  respect  to  his  agency,  are  no  more  operative  as  against  the 
institution  than  the  acts  of  any  ordinary  corporator;  and  these 
no  more  so  than  the  acts  of  a  stranger. 

"  In  the  case  at  bar,  the  learned  judge  held  that  proof  of 
publishing  the  notice,  and  actual  knowledge  in  the  director 
whose  duty,  as  one  of  the  board,  it  was  to  pass  on  the  discount 
and  renewal  of  notes,  and  who  w^as  therefore  to  be  regarded  as 
the  agent  of  the  plaintiffs,  was  sufficient  proof  of  their  knowl- 
edge. In  this  we  think  he  erred.  The  board  were  the  agents 
for  the  purposes  mentioned,  and  they  should  acquire  this  sort 
of  knowledge  as  such,  or  at  least  the  firm  should  show  notice 
brought  home  to  some  other  agent  specially  authorized  by  the 
bank,  or  by  the  course  of  their  business,  to  receive  it." 

In  the  case  of  Fairfield  Savings  Bank  v.  Chase,  72  Me.  226, 
it  is  held  that  a  notice  to  a  bank  director,  or  trustee,  or  knowl- 
edge obtained  by  him,  while  not  engaged  either  officially,  or  as 
an  agent  or  attorney  in  the  business  of  the  bank,  is  inoperative 
as  a  notice  to  the  bank.  The  rule,  as  laid  down  in  this  case,  is 
stated  as  follows: 

"  A  single  trustee  or  director  has  no  power  to  act  for  the 
institution  that  creates  his  office,  except  in  conjunction  with 
others.  It  is  the  board  of  directors  only  that  can  act.  If  the 
board  of  directors  or  trustees  makes  a  director  or  any  person, 
its  officer  or  agent,  to  act  for  it,  then  such  officer  or  agent  has 
the  same  power  to  act,  within  the  authority  delegated  to  him, 
that  the  board  itself  has.  His  authority  is,  in  such  case,  the 
authority  of  the  board.  I^otice  to  such  officer  or  agent,  or 
attorney,  who  is  at  the  time  acting  for  the  corporation  in  the 
matter  in  question,  and  within  the  range  of  his  authority  or 
supervision,  is  notice  to  the  corporation." 

In  California,  in  the  case  of  Balfour  v.  Fresno  Canal  Co., 
128  Cal.  :3!)r),  the  rule  is  laid  down  as  follows: 

'*  A  corporation  must  be  presumed  to  have  full  notice  of  all 


CH.  VIII.]  Bankiis^g.  107 

the  facts  which  are  known  to  its  president  affecting  its  interest. 
It  is  his  dntj,  as  the  head  of  the  corporation,  to  report  the  same 
to  the  trustees,  and  it  is  usually  conclusively  presumed  that  .he 
has  done  so." 

The  court  says :  "  The  president  of  a  corporation  is  the 
proper  person  to  whom  notice  which  is  to  affect  a  corporation 
is  to  be  given.  The  corporation  has  no  ears,  eyes,  nor  under- 
standing, save  through  its  agents.  The  president  is  considered 
the  head  of  the  corporation,  and  it  is  his  duty  to  report  to  the 
trustees  information  affecting  the  interest  of  the  corporation. 
And  the  presumption  is  that  he  does  so.  Usually  this  is  a 
conclusive  presumption." 

The  question  is  again  discussed  by  the  court  in  California, 
in  the  case  of  McDonald  v.  Randall,  139  Cal  246. 

The  case  was  tried  on  an  appeal  from  the  Superior  Court  of 
Humboldt  county.     The  lower  court  found  the  following  facts : 

''  That  the  said  Randall  Banking  Company  purchased  said 
note  and  mortgage  in  good  faith  and  in  the  ordinary  course  of 
business,  and  for  value  before  its  maturity  and  in  ignorance  of 
the  fact  that  as  to  Margaret  H.  McDonald  it  was  given  without 
consideration,  or  for  a  debt,  which  was  barred  by  the  Statute 
of  Limitation." 

The  Supreme  Court  in  its  opinion  says: 

"  This  finding,  if  sustained  by  the  evidence,  is  determinative 
of  the  case  against  the  appellants.  It  is  contended,  however, 
that  this  finding  must  be  held  to  be  unwarranted,  because  it 
appears,  and  the  court  found,  that  Randall  was  the  president 
of  the  bank  and  knew  of  the  consideration  of  the  note.  But 
when  he  procured  the  bank  to  take  the  note  as  part  payment 
of  his  indebtedness,  he  was  acting  individually  and  at  arm's 
length  to  the  bank,  and  his  knowledge  was  not  the  knowledge 
of  the  bank.  The  same  may  be  said  of  the  former  secretary, 
Murray,  who  was  absent  when  the  bank  acted  in  the  matter  of 
accepting  the  note  and  mortgage,  and  who  obtained  his  knowl- 
edge while  acting  for  Randall  individually;  and  also  of  Roberts, 
who  was  elected  secretary  on  the  day  the  bank' acted,  and  who 
presented  the  note  and  mortgage  to  the  bank  for  and  as  agent 
of  Randall.  The  note  and  mortgage  were  accepted  at  a  meet- 
ing of  the  board  of  directors  of  the  bank,  at  which  were  present 
Hill,  the  vice-president,  and  four  of  the  other  directors.  Ran- 


108  Bank  Officers  and  Agents.  [ch.  viii. 

dall  not  being  present.  Neither  Hill  nor  any  other  of  the 
directors  knew  that  the  consideration  of  the  note  was  an  out- 
lawed indebtedness.  The  fact  that  some  of  them  kne"w,  or 
should  be  held  to  have  known,  that  shortly  before  the  making 
of  the  note  and  mortgage  the  property  covered  by  the  mort- 
gage had  been  conveyed  to  the  plaintiff  by  her  husband  —  it 
formerly  having  been  community  property  —  and  that  the 
conveyance  had  been  recorded,  is  of  no  significance.  The 
validity  of  the  transaction  here  involved  was  in  no  way  depend- 
ent upon  the  time  at  which  she  acquired  title  to  the  mortgaged 
pi-emises.  That  a  corporation  is  not  chargeable  with  the 
knowledge  of  one  of  its  officers  or  agents  who  is  acting  on  his 
owm  behalf,  and  not  for  the  corporation,  is  beyond  question  the 
law.  Sufficient  authorities  are  cited  to  the  point  in  Bank  v. 
Burgwyn,  110  X.  C.  267.  It  is  there  said,  among  other 
things:  '  In  such  transactions  the  attitude  of  the  agent  is  one 
of  hostility  to  the  principal.  Pie  is  dealing  at  arms  length,  and 
it  w^ould  be  absurd  to  suppose  that  he  would  communicate  to 
the  principal  any  facts  within  his  private  knowledge  affecting 
the  subject  of  his  dealing,  unless  it  would  be  his  duty  to  do  so, 
if  he  w^ere  wholly  unconnected  with  the  principal.  As  was  said 
by  the  court  in  Wickersham  v.  Chicago  Zinc  Co.,  18  Kan.  481, 
'  !N"either  the  acts  nor  knowledge  of  an  officer  of  a  corporation 
will  bind  it  in  a  matter  in  which  the  officer  acts  for  himself  and 
deals  with  the  corporation  as  if  he  had  no  official  relations  with 
it; '  or,  as  was  said  in  Barnes  v.  Trenton  Gas  Light  Co.,  27 
N.  J.  Eq.  33,  '  His  interest  is  opposed  to  that  of  the  corpora- 
tion, and  tlie  presumption  is,  not  that  he  will  communicate  his 
knowledge  of  any  secret  infirmity  of  the  title  to  the  corporation, 
but  that  he  will  conceal  it.' 

"  We  are  of  the  opinion  that  the  finding  above  discussed  can- 
not here  be  disturbed;  and  therefore  it  is  unnecessary  to  con- 
sider any  other  point  argued  by  respondents." 

In  Illinois,  in  the  case  of  First  Nat.  Bank  of  Monmouth  v. 
Dunbar,  118  111.  625,  it  is  held  that  w^here  a  cashier  purchases 
bonds  for  a  customer  of  the  bank^  and  receives  the  bond  on 
special  deposit,  he  acts  as  agent  of  the  bank.  And  if,  to  hide 
an  embezzlement,  he  takes  such  bonds  from  the  special  deposit, 
and  places  them  among  the  assets  of  the  bank,  his  knowledge 
is  the  knowdedge  of  the  bank,  and  the  bank  cannot  acquire  a 


CH.  VIII,]  Bankhstg.  109 

legal  title  to  the  bonds  %vitlioiit  the  knowledge  or  consent  of  the 
true  owner. 

The  rule  is  again  stated,  as  follows: 

"  Notice  to  an  agent  of  a  bank,  or  other  corporation,  en- 
trusted to  the  management  of  its  business,  or  of  a  particular 
branch  of  its  business,  is  notice  to  the  corporation,  in  trans- 
actions conducted  by  such  agent  acting  for  the  corporation 
within  the  scope  of  his  authority,  whether  the  knowledge  of 
such  agent  was  acquired  in  the  course  of  the  particular  dealing 
or  on  some  prior  occasion."  ^ 

In  Mississippi,  notice  to  a  bank  clerk  of  matters  not  under 
his  charge  is  not  notice  to  the  bank.^*^ 

Notice  to  a  cashier  that  bank  funds  have  been  loaned  is 
notice  to  the  bank.^^ 

In  Massachusetts  it  is  held  that  the  cashier's  knowledge  of 
fraud  in  a  note  is  notice  to  the  bank.^^ 

It  is  held  in  the  case  of  Seneca  Co.  Bank  v.  Xeass,  5  Denio, 
329,  that  knowledge  obtained  by  the  cashier  outside  of  his 
duties  is  not  notice  to  the  bank. 

In  the  case  of  National  Security  Bank  v.  Cushman,  121  Mass. 
490,  the  court  holds,  that  when  a  director  of  a  bank,  who  acts 
for  the  bank  in  discounting  a  note,  has  knowledge  that  the  note 
was  procured  by  fraud,  the  bank  is  affected  with  the  knowledge. 

A  bank  is  bound  to  take  notice  of  a  power  of  attorney  given 
by  a  third  person  to  its  president,^^ 

§  109.  Director  must  have  actual  knowledge. 

In  the  case  of  Mann  v.  Sec.  Xat.  Bank  of  Springfield,  34 
Kan.  746,  it  is  held,  that : 

"  A  corporation  should  be  held  to  have  constructive  notice 
of  only  such  facts  as  have  been  brought  to  the  actual  notice  or 
attention  of  some  one  of  its  officers  or  agents,  or  of  such  facts 
only  as  have  been  constructively  brought  to  the  notice  or 
attention  of  some  one  of  its  officers  or  agents  by  the  actual 
notice  of  such  other  facts  as  would  naturally  put  the  officer  or 

25Cragie  v.  Hadley,  99  N.  Y.  131;  28  pall,  etc.,  Bank  v.   Sturtevant, 

Smith  V.  Board  et  al.  Co.,  38  Conn.  66  Mass.  372. 

208.  20  ^Mechanics  Bank  v.  Schaumberg, 

26Goodloe  r.  Godley.  21  Miss.  233.  38  Mo.  228. 

27  New  Hope,  etc.,  Co.   v.  Phoenix 
Bank,  3  N.  Y.  156. 


110  Baxk  Officers  axd  Agexts.  [ch.  viii. 

agent  upon  inquiry;  and  therefore,  held,  where  none  of  the 
officers  or  agents  of  a  bank  had  any  actual  notice  of  any  in- 
firmity of  a  note  purchased  by  the  bank  but  one  of  the  directors 
who  was  also  a  member  of  the  discount  committee  of  the  bank 
was  the  president  and  general  manager  of  another  coi*poration, 
one  of  whose  agents,  not  the  president  and  general  manager, 
had  actual  notice  of  an  infirmity  of  the  note,  such  as  would 
require  the  agent's  own  corporation  to  take  constructive  notice 
of  such  infirmity,  the  bank  may  nevertheless  be  considered  as 
an  innocent  purchaser  of  the  note  without  notice  of  any  in- 
fii-mity  affecting  it,  notwithstanding  the  fact  that  the  other 
corporation  had  constructive  notice  through  its  agent  of  such 
infirmity." 

A  bank  is  not  chargeable  with  the  knowledge  which  a  director 
has  acquired,  in  his  individual  capacity,  as  to  paper  offered  for 
discount^  and  which  he  does  not  disclose.  And  where  as  a 
director  he  does  not  discount  the  paper  himself,  as  an  officer  or 
agent  of  the  bank.^*^ 

§  110.  When  director  is  chargeable  with  knowledge  as  against 
himself. 

"  Knowledge  of  the  corporate  officer  or  agent  will  not  be 
imputed  to  the  corporation  where  the  fact  is  one  which  the 
officer  or  agent  is  interested  in  concealing  from  it,  except  in 
cases  where  a  contrary  rule  is  necessary  to  save  the  rights  of 
innocent  third  persons."  ^^ 

§  111.  Directors'  liability. 

The  well  known  and  established  rule  of  law  is,  that  the 
directors  must  manage  the  business  of  the  bank,  as  directed 
by  the  law  and  the  bank's  charter.  And  if  they  fail  to  per- 
form their  duty  in  good  faith,  they  will  be  held  lia"ble  for  the 
losses  to  the  stockholders  and  creditors. ^^ 

Tliey  are  liable  where  they  fail  to  use  ordinary  care  in  the 
inspection  of  the  books  of  the  bank. 

The  directors  may  commit  the  ministerial  work  of  the  bank 
to  officers  duly  authorized  to  perform  the  same,  but  this  docs 

30  49  Mich.  384.  32  Solomon    r.    Bates.    118    N.    C. 

31  Cvcloppdia  of  Law  &  Procedure,  311,  24  N.  E.  478;  Bank  of  St. 
vol.  10,  p.  10G4.  Mary's  v.  St.  John's,  25  Ala.  566. 


cn.  VIII.]  Banking.  Ill 

not  absolve  them  from  the  duty  of  reasonable  'supervision  or 
shield  them  from  liability  for  the  wrong-doing  of  snch  official, 
if  through  gross  inattention  the  wrong-doing  has  escaped  their 
notice.^" 

They  are  not  excused  from  liability  because  of  want  of 
knowledge  of  wrong-doing,  if  that  ignorance  is  the  result  of 
gross  negligence. 

They  must  use  ordinary  care,  and  ordinary  care  is  some- 
thing more  than  officiating  as  "  figure  heads." ^^ 

§  112.  Degree  of  care. 

The  degree  of  care  required  of  a  director,  the  Supreme 
Court  of  the  IT.  S.  says: 

"  Depends  upon  the  subject  to  which  it  is  to  be  applied. 
Each  case  is  to  be  determined  in  view  of  all  the  circumstances." 

Where  the  statute  expressly  provides  that  a  dividend  shall 
only  be  declared  from  the  profits  or  surplus  funds  of  the  bank, 
and  the  directors  in  ignorance  of  the  law,  declared  a  dividend 
which  impaired  the  capital  stock,  they  are  liable  to  the  stock- 
holders. Igniorance  of,  an  express  provision  of  law,  does  not 
excuse  a  director. 

But  where  a  dividend  is  declared,  from  the  assets  which 
prove  to  be  only  bad  judgment,  and  not  bad  faith,  they  are 
not  liable. 

In  the  case  of  Witters  Receiver,  etc.  v.  Sowles,  31  Fed.  Rep. 
1,  the  court  says: 

"  Bank  directors  cannot  be  held  personally  liable  for  money 
paid  out  for  dividends  to  a  greater  amount  than  net  profits, 
after  deducting  losses  and  bad  debts  (Rev.  St.  U.  S.  5204), 
because  these  were  debts,  bad  in  fact  but  supposed  to  be  good 
when  the  dividends  were  declared  and  paid. 

Bad  judgment  on  the  part  of  the  directors,  as  to  the  condi- 
tion of  the  assets,  without  bad  faith,  does  not  make  them 
individually  liable." 

§  113.  Acting  in  good  faith. 

They  will  not  be  held  liable  when  acting  in  good  faith  and 
under  a  mistake  of  law.     If  they  act  in  ignorance,  and  wdiere 

33  Wheeler   v.   Aiken   Co.   Loan  &  34  Briggs   v.   Spalding,    141   U.   S. 

Sav.  Bank,  75  Fed.  Rep.  781.  132. 


112  Bank  Officees  and  Agents.  [ch.  viii. 

their  acts  are  directed  and  authorized  by  counsel  employed  by 
them. 

It  is  their  duty  to  know  the  express  provisions  of  the  statute 
which  define  their  power,  and  for  a  violation  of  all  such  acts 
however  committed  by  them,  they  will  be  held  liable. 

§  114.  Directors  declaring  a  dividend. 

The  general  rule  as  to  the  liability  of  the  directors  in  de- 
claring a  dividend,  is  laid  down  by  Cooke  on  Corporations,  he 
says: 

"  Where  the  directors  declare  a  dividend  in  good  faith  and 
without  negligence,  they  are  not  to  be  held  liable,  merely 
because  the  dividend  turns  out  to  have  impaired  the  capital 
stock." 

But  where  the  directors  place  fictitious  values  on  the  assets 
in  order  to  declare  a  dividend,  such  directors  are  liable. ^'^ 

A  director  cannot  be  held  liable  for  a  dividend  declared  at 
a  meeting  when  absent  or  of  which  he  had  no  notice,  and  he 
may  be  relieved  from  liability  if  present,  by  declaring  and 
voting  against  the  declaration  of  such  illegal  dividend. 

An  illegal  di\adend  declared  out  of  the  capital  stock,  in 
violation  of  law,  and  paid  by  the  directors,  is  a  misdemeanor.^*' 

The  statutory  liability  of  directors  in  an  Oregon  corpora- 
tion for  declaring  dividends,  out  of  the  capital  stock,  is  a  penal 
liability.^^ 

§  115.  Excuses  of  directors. 

Ill  health  is  held  to  be  no  excuse  for  a  failure  to  perform 
a  duty,  especially  when  at  the  time  of  election  as  a  director, 
he  as  such  director  accepted  the  office;  but  where  a  director 
of  a  national  bank  is  seriously  ill,  it  is  within  the  power  of 
the  other  directors  to  give  him  leave  of  absence  for  a  term 
of  one  year  instead  of  requiring  him  to  resign.  And  if  frauds 
are  committed  during  his  absence  and  without  his  knowledge, 
whereby  the  bank  suffers  loss,  he  is  not  responsible  for  them.^^ 

The  fact  that  a  director  is  a  non-resident  of  the  State  does 
not  excuse  him  for  false  statements  sent  out  by  the  bank. 

^5  Cockrill  r.  Abeles,  86  Fed.  Rep.  ^'  Patterson  r.  Wade,  15  Fed.  Rep. 

505.  770. 

SGVercontere   v.   Golden   State  L.  .iS  Briggs    v.    Spalding,    142   U.   S. 

Co.,  116  Cal.  410.  132;   German   Sav.   Bank   v.   Wulfe- 

kuhler,  19  Kan.  00. 


CH.  Yiii.]  Baxkixg.  113 

This  question,  with  others,  is  discussed  at  length  in  the 
case  of  Houston  y.  Thornton  et  al.  29  S.  E.  827,  and  in  view 
of  the  importance  of  this  subject  we  cite  from  the  opinion  of 
the  court  the  following  portion: 

"  The  issues  tendered  by  the  defendants  presented  the  ques- 
tion whether  there  had  been  fraud  and  misrepresentation  on 
the  part  of  the  defendants.  Tliose  settled  by  the  court  at  the 
close  of  the  plaintiff's  evidence  presented  the  enquiry  whether 
there  had  been  negligence  and  wrongful  acts  by  which  the 
plaintiff  had  been  damaged.  The  latter  were  proper  upon  the 
pleadings.  Tlie  plaintiff  complained  that  the  board  of  direc- 
tors of  the  Peoples'  Xational  Bank,  among  whom  were  the 
defendants,  in  February,  1890,  and  at  sundry  other  times 
before  and  after,  caused  to  be  published  reports  of  the  status 
of  the  bank,  which  showed  it  to  be  amply  solvent,  whereby  the 
plaintiff  was  induced,  in  April,  1890,  to  purchase  eleven  shares 
of  the  capital  stock  of  said  bank,  whereas  at  the  times  afore- 
said the  bank  was  hopelessly  insolvent,  and  had  been  so  for 
at  least  five  years;  that  the  said  directors  either  knew  this  to 
be  the  true  condition  of  the  bank,  or  with  proper  care  could 
have  known  it.  The  complaint  is  full,  and  contains  a  detailed 
statement  of  the  acts  of  negligence  alleged  against  the  defend- 
ant. The  bank  was  declared  insolvent  on  the  31st  of  Decem- 
ber, 1890,  and  the  receiver  took  charge  in  February,  1891. 
The  plaintiff  not  only  lost  the  whole  sum  ($1,100)  invested 
in  the  purchase  of  said  eleven  shares  of  the  stock  of  the  bank, 
but  under  the  liability  clause  of  the  national  banking  act  has 
been  assessed  50  per  cent,  on  her  stock,  and  a  judgment  has 
been  obtained  against  her  by  the  receiver  for  $550  on  that 
account  in  the  Federal  court.  The  published  statement  of 
the  bank,  January  2,  1890,  showed  that  the  capital  stock  was 
$125,000,  the  deposits  $87,300,  the  surplus  $32,000,  and  un- 
di"vaded  profits  $6,795.  The  fonner  cashier  of  the  bank  testi- 
fied, without  contradiction,  that  this  statement  was  made  by 
the  order  of  the  directors;  that  it  was  untrue;  that  there  was  no 
surplus,  no  undi-\dded  profits,  and  that  the  bank  did  not  even 
have  its  capital  stock;  that,  if  the  directors  had  examined  the 
papers,  they  would  have  known  the  insolvency  of  the  bank; 
that  at  that  time  the  president  (Moore)  owed  the  bank  between 
$100,000  and  $120,000;  that  one  of  the  directors  (Thornton) 


114  Bank  Officeks  axd  Agents.  [ch.  viii. 

owed  the  bank  about  $-10,000,  another  director  McXiell 
owed  it  $20,000,  and  Starr,  another  director,  owed  it  between 
$6,000  and  $7,000,— thus  between  $166,000  and  $187,000 
being  due  the  bank  from  these  officials,  of  whom  MclSTeill  was 
then  known  to  be  insolvent  and  failed  in  ISTovember,  1890, 
and  Thornton  in  the  spring  of  1891;  that  the  bank  never  had  a 
finance  committee;  that  in  Xovember,  1889,  Moore  owed  the 
bank  on  his  unsecured  paper  $100,000,  of  which  $30,000  had 
been  due  three  to  ten  years.  It  is  needless  to  go  through  the 
evidence,  which  shows  the  most  culpable  negligence  on  the 
part  of  the  board  of  directors,  for  this  is  sufficiently  shown 
by  the  above-recited  facts  if  nothing  further  had  been  proved. 
At  the  meeting  of  the  directors  on  January  14,  1890,  a  divi- 
dend of  4  per  cent,  out  of  the  profits  was  declared,  all  the 
directors  being  present,  and  the  defendants  voting  for  the 
declaration  of  the  same;  though  this  dividend,  like  all  tlie 
other  semi-annual  di\'idends  for  the  five  years  previous  was 
in  fact  paid  out  of  the  deposits,  and  not  out  of  the  earnings. 

The  defendants  asked  the  court  to  charge: 

1.  "  That  upon  the  facts  in  evidence  the  plaintiff  cannot 
recover,  because  of  any  negligence  of  the  defendants,  they  l^eing 
directors  of  a  national  bank  in  the  hands  of  a  receiver,  be- 
comes an  asset  of  the  bank,  for  which  the  receiver  alone  can 
sue,  and  the  jury  will  therefore  answer  the  second  issue  'ISTo.'  " 
This  prayer  was  properly  refused.  The  wrong  complained  of 
is  not  one  toward  the  company,  not  any  negligence  in  the  duty 
to  guard  its  interests  and  to  comply  with  the  requirements  of 
the  National  Banking  Act,  but  a  wrong  to  the  plaintiff  in  per- 
mitting a  false  and  fraudulent  statement  of  the  condition  of 
the  bank  to  be  published,  whereby  the  plaintiff,  trusting  in 
the  truth  thereof,  and  the  high  character  of  the  defendants^ 
was  misled  into  parting  ^^dth  $1,100  for  the  purchase  of 
eleven  shares  of  the  capital  stock  of  the  company,  which  at 
that  time  was  worse  than  worthless.  This  is  not  a  cause  of 
action  that,  under  any  circumstances,  could  have  passed  to  the 
receiver.  3  Thomp.  Corp.  §§  4132,  4144,  4304.  If  this  action 
had  been  brought  by  a  depositor  "  the  settled  doctrine  of  the 
law  is  that  if,  in  the  pretended  performance  of  duties  imposed 
upon  them  by  law,  the  directors  of  a  bank  used  their  official 
station  to  make  false  representations  which  are  believed  and 


en.  VIII.]  Baxkixg.  115 

acted  upon  Lv  third  parties,  they  are  liable  to  respond  for  the 
injury  done  to  the  one  defrauded  thereby,  and  that  the  lia- 
bility provided  for,  in  the  National  Banking  Act  cannot  be 
deemed  to  preclude  the  right  to  maintain  a  common-law  action 
for  deceit  for  such  false  and  fraudulent  representation." 
Prescott  V.  Haughey,  65  Fed.  Rep.  653,  659,  which  distin- 
guishes Bailey  v.  Mosher,  11  C.  C.  A.  304,  63  Fed.  Rep.  488; 
Delano  v.  Case,  121  111.  247,  12  X.  E.  Rep.  676;  3  Thomp. 
Corp.  §  4304.  The  allegations  and  proof  as  to  declaring  divi- 
dends out  of  deposits,  and  allo^dng  an  official  to  bon'ow  more 
than  one-tenth  of  the  capital  stock,  are  not  the  basis  of  this 
action.  If  they  were,  then  the  receiver  should  have  brought 
the  action;  but  they  are  merely  evidential  to  show  the  negli- 
gence whereby  the  plaintiff,  not  the  bank,  was  injured,  and 
to  support  her  action  for  the  injury  to  herself. 

2.  "  That  the  plaintiff  cannot  recover  unless  the  jury  shall 
believe  from  the  evidence  that  the  defendants  participated  in 
the  fraudulent  statement  made  by  other  officers  of  the  bank; 
and  unless  the  plaintiff  has  shown  such  participation,  the 
jury  ^vill  answer  the  second  issue,  '  Xo.'  "  Refused,  and  the 
defendants  excepted.  There  was  no  error  in  refusing  this 
prayer.  The  ground  of  recovery  is  not  the  participation  of 
the  defendants  in  fraud,  but  that,  by  their  gross  negligence, 
they  permitted  the  statements  to  be  put  forth  upon  their 
authority  showing  the  bank  to  be  amply  solvent,  with  large 
surplus,  and  the  declaration  of  4  per  cent,  semi-annual  divi- 
dends out  of  profits,  when  there  had  been  no  profits,  as  to  all 
of  which  the  defendants  should  have  been  informed.  It  was 
in  evidence,  and  not  denied,  that  all  the  directors  were  present 
when  the  dividend  of  January,  1890,  was  declared,  and  Starr 
alone  voted  "  Xo,"  as  to  whom  a  non-suit  was  entered.  As  was 
said  in  Solomon  v.  Bates,  118  X.  C.  311,  24  S.  E.  478,  and  re- 
affirmed in  same  case,  118  X.  C.  321,  24  S.  E.  746,  and  Cald- 
well V.  Bates,  118  X.  C.  323,  24  S.  E.  481:  '^  If  false  and 
fraudulent  statements  of  the  condition  of  the  corporation  are 
put  forth  under  the  authority  of  the  directors,  it  is  not  neces- 
sary that  they  should  know  them  to  be  such.  It  is  their  duty 
to  know  them  to  be  true,  and  they  are  liable  for  damages  sus- 
tained by  any  one  dealing  with  the  corporation,  relying  upon 
the  truth  of  such  reports."     1   Morse,  Banks,   §§   132,   137; 


116  Baxk  Officers  and  Agexts.  [cir.  viii. 

Kinkier  v.  Jtmica,  84  Tex.  116,  19  S.  W.  359.  So  salutary 
and  just  a  rule  is  supported  by  ample  authority  elsewhere; 
and,  if  it  were  not,  it  is  correct  in  itself,  and  a  just  protection, 
to  which  the  public  are  entitled.  It  is  not  necessary,  as  the 
defendants  asked  the  court  to  instruct  the  jury,  that  these  de- 
fendants "  participated  in  the  fraudulent  statements;  "  but, 
if  the  statements  were  given  to  the  public  by  the  authority  of 
the  board  of  directors  (which  is  not  controverted),  and  were 
in  fact  false  and  fraudulent,  and  the  plaintiff  rehdng  thereon 
(as  she  had  a  right  to  do),  was  induced  to  buy  stock,  or  had 
made  deposits  whereby  she  suffered  injury,  all  the  directors 
are  liable  whether  they  ""  participated  "  in  the  fraud  or  not. 
Arnison  v.  Smith,  41  Ch.  Div.  348;  3  Thomp.  Corp.  §  4108. 

§  116.  Compensation  of  directors. 

The  general  rule  is  that  directors  of  banks  are  acting  as 
trustees  and  as  such  are  supposed  to  serve  Avithout  compensa- 
tion, 

A  governing  statute  may  allow  them  to  regulate  their  own 
compensation;  but  in  the  absence  of  a  statute  or  by-law  their 
services  are  supposed  to  be  gratuitous. 

They  cannot  recover  compensation  for  doing  what  they 
should  have  done  as  directors.^^ 

They  cannot  vote  themselves  salaries.  Such  a  resolution  is 
void,  as  being  a  promise  without  a  consideration.'*^ 

They  cannot  vote  themselves  a  compensation  for  services 
already  performed."" 

They  may  recover  for  services,  however,  which  are  rendered 
outside  of  their  duty.^^ 

It  is  claimed  they  may  recover  for  services  rendered  prior 
to  organization. "^'^ 

Such  services  may  be  recovered  for  if  authorized  by  a 
majority  of  the  shareholders.** 

39  Brown  v.  Vallev  View  Mining  42  Bassett  r.  Fairchild,  132  Cal. 
Co.,  127  Cal.  030/06  Pac.  424;  G37 :  Fitzgerald,  etc..  Coast  Co.  v. 
Brown  v.  Republican  Mountain  Ril-        Fitzgerald,  137  U.  S.  98. 

ver  Mines,  17  Colo.  421.  30  Pac.  66;  43  Mobile  Branch  Bank  r.  Collins, 

Brown  r.  Beck,  83  Ga.  471,  10  S.  E.  7  Ala.  95;  Allerton  First  Xat.  Bank 

121.  r.  Hooh.  89  Pa.  St.  324. 

40  Gardner  v.  Butler,  36  X.  J.  Eq.  44  Tift  /-.  Quaker  City  Nat.  Bank, 
702.  141  Pa.  St.  550. 

41  Blue  r.  Canfield  Xat.  Bank,  145 
Ind.  518,  43  X.  E.  655. 


CHAPTER  IX. 


THE  PRESIDENT. 

§  117.  General  qualifications. 

The  executive  business  of  a  bank  is  conducted  by  its  presi- 
dent, vice-president,  cashier  and  secretary.  They  having  been 
duly  elected  or  appointed  by  the  board  of  directors,  as  the  law 
may  require,  assume  the  management  and  conduct  its  affairs. 

The  president  of  a  bank  should  be  educated.  He  must  have 
obtained  at  least  a  liberal  education.  He  should  be  able  to 
speak  and  write  the  English  language  fluently  and  correctly. 

It  may  not  be  considered  necessary  in  the  successful  man- 
agement of  a  bank,  that  the  president  or  managing  officer 
should  have  graduated  from  a  university^  but  it  cannot  1)6 
said  of  a  president  of  a  bank  who  has  matriculated  that  his 
attainments  and  distinction  as  a  scholar  are  a  detriment  to 
him  in  his  profession  as  a  banker.  The  deeper  his  education 
and  training  are  laid  in  youth,  the  broader  his  comprehension 
and  ability  to  preside  in  his  profession.  He  should  be  able  to 
speak  well  that  he  may  be  correctly  understood,  and  write 
well,  so  that  the  meaning  of  his  words  cannot  be  misconstrued. 
To  be  concise  and  accurate  in  his  speech  and  correspondence 
forms  a  very  important  part  in  the  management  of  a  largo 
bank.  There  are  numerous  instances  where  the  correspond- 
ence has  been  loosely  prepared,  possibly  having  a  double  mean- 
ing, which  has  brought  litigation  and  loss  to  the  bank.  It 
must  be  borne  in  mind  that  the  statements  either  verbally  made 
or  reduced  to  writing  by  an  officer  of  the  bank,  while  in  charge 
of  its  business,  are  binding  upon  it;  and  the  stockholders  may 
be  held  liable.  An  officer  being  in  charge  of  the  affairs  of  a 
bank,  and  directing  its  business,  is  sufficient  presumption  of 
authority  to  bind  the  bank;  and  the  representations  of  the 
president  of  a  bank  made  in  transacting  its  business  are  admis- 
sible in  e\adence  against  the  bank,  but  statements  made  by 
him  away  from  the  bank,  and  in  which  the  bank  has  no  interest^ 
are  not  admissible  in  evidence  against  the  bank. 

[1171 


118  The  Peesident.  [cii.  ix. 

The  duties  of  a  president,  as  his  office  indicates,  are  execu- 
tive. He  should  preside  at  all  meetings  of  the  board  of 
directors;  and  upon  such  occasions  it  frequently  becomes  neces- 
sary to  formulate  an  important  document,  to  draft  a  preamble 
or  resolution.  These  meetings  are  usually,  if  not  always,  secret 
sessions;  and  the  business  is  therefore  secret  and  the  president 
of  a  bank  should  at  least  have  such  an  education  as  would 
qualify  him  for  this  work. 

It  is  an  erroneous  opinion  which  is  held  by  some,  that  a 
preparation  or  education  for  the  profession  in  the  manage- 
ment of  a  bank  is  unnecessary.  To  say  that  a  banker  "  should 
have  some  preparation  for  his  work  "  is  not  a  sufficient  quali- 
fication, or  the  standard,  w^hich  is  required  in  the  race  for 
prominence  and  success.  "  Some  preparation  "  does  not  qualify 
the  mechanic  in  the  construction  and  building  of  the  perfect 
engine,  which  hauls  the  great  passenger  trains  that  are  filled 
with  precious  lives. 

A  banker  is  like  the  educated  and  trained  pilot,  and,  when 
a  financial  storm  sweeps  over  the  country^  he  should  be  at  the 
helm;  his  training  and  preparation  for  his  work  will  then 
prove  a  storehouse  of  wealth,  and  his  bank,  otherwise  properly 
guarded,  cannot  be  foundered. 

To  be  the  trustee  of  the  stockholder  and  the  guardian  of 
the  people's  money  is  a  responsible  position,  and  ignorance 
should  not  be  crowned  as  manager  to  execute  such  trusts. 

It  is  no  uncommon  thing  to  learn  after  a  bank  has  failed 
that  it  was  caused  by  the  officers  using  and  speculating  with 
the  bank's  funds,  or  permitting  the  use  of  the  same  by  others 
in  violation  of  law. 

I  believe  the  records  will  justify  the  statement  that  50  per 
cent,  of  all  bank  failures  are  brought  about  in  this  way.  A 
bank  officer  should  not  be  a  speculator,  or  become  directly  or 
indirectly  a  partner  in  speculations  in-  connection  with  his 
depositors.  If  he  is  engaged  in  outside  interests  there  is  serious 
danger  that  he  ^^^ll  neglect  the  interests  of  the  bank.  A  banker 
who  is  a  speculator^  without  any  previous  thought  of  wrong  or 
injury  to  the  bank,  becomes  himself  a  heavy  borrower  of  the 
bank's  funds.  There  being  no  restriction  or  limitation  as  to 
the  amount  he  may  borrow,  he  finds  it  a  very  easy  matter  to 
give  his  note  and  take  the  money.     lie  has  all  confidence  In 


cii.  IX.]  Baxkiistg.  119 

his  ability  to  replace  the  accommodation  at  any  moment;  bnt 
he  seldom  calls  upon  himself  to  pay  back  money  so  easily  bor- 
rowed, and  reverses  set  in.  His  judgment  proved  bad,  and 
finally  a  general  depression  sweeps  over  the  country  and  the 
bank  fails.     What  is  the  cause? 

The  practice  is  dangerous.  -  It  should  be  stopped.  There  is 
precedent  after  precedent  where  Itank  officers  have  granted  to 
themselves  unlimited  credit  in  their  own  bank,  or  to  others 
wath  whom  they  were  interested  in  business,  which  caused  ruin 
to  depositors  and  stockholders  alike. 

It  is  said  that  no  law  is  a  barrier  to  those  who  intend  to 
disobey  it,  but  there  is  no  criminal  who  does  not  contemplate 
the  force  and  effect  of  the  law,  and  if  a  strict  limitation  pro- 
hibiting such  accommodations  were  upon  the  statute  books,  it 
would  be  the  means  of  saving  many  banks  from  ruin  and 
future  insolvency.  It  is  argued  by  some  that  such  strict  limi- 
tations should  not  be  enforced  against  the  bank  officers  by 
legislative  action^  but  should  be  placed  in  the  hands  of  the 
directors.  That  they  are  better  qualified  to  determine  the 
ability  of  the  borrower  to  repay,  than  the  law  which  would 
fix  by  arbitrary  legislation  a  limit  upon  his  credit.  Upon  this 
question  there  are  various  and  interesting  opinions,  from  our 
best  financiers;  but  many  leading  bankers  who  have  given  this 
subject  unprejudiced  consideration  are  almost  unanimously  in 
favor  of  restricting,  or  limiting,  the  amount  an  officer  or  other 
parties  can  borrow  from  his  o^vn  bank.  Several  States  have 
put  themselves  on  record  and  have  enacted  such  a  law.  The 
National  Banking  Law  has  never  been  construed  upon  this 
question  to  operate  as  a  barrier  to  business.  Xeither  has  it 
had  the  effect  to  deter  honest  and  intelligent  men  from  serving 
as  directors. 

The  president  of  a  bank  should  be  qualified  to  preside  over 
the  bank,  and  he  should  not  delegate  his  responsibility  or  au- 
thority to  the  cashier  and  reply,  if  disaster  comes  (as  it  may 
if  he  fails  in  the  performance  of  his  trust),  "  I  could  not  pre- 
vent the  crisis.  The  cashier  failed  to  give  me  notice  of  the 
dangerous  condition  of  matters  until  it  was  too  late."  It  is 
his  duty  to  know  the  condition  of  the  bank,  and  when  the 
storm  is  on  he  should  be  at  the  helm.     To  be  the  trustee  of 


120  The  Peesidea^t.  [cii.  ix. 

the  people's  money  is  a  responsible  position^  but  if  accepted 
it  should  be  faithfully  executed,  and  criminal  negligence,  omis- 
sion of  duties,  and  carelessness  should  not  be  excused. 

A  successful  bank  will  have  at  its  head  a  man  who  is  always 
at  his  post;  one  who  will  as  faithfully  guard  the  treasure  of 
those  confiding  in  him  as  he  would  his  own. 

The  management  of  banks  is  too  frequently  left  in  the 
hands  of  their  cashiers,  the  president  having  been  selected  for 
his  wealth  or  social  standing.  Every  officer  and  employee 
engaged  should  be  laborers,  acquainted  w^tli  all  the  details  of 
their  business^  and  interested  in  all  matters  pertaining  to  the 
prosperity  oi  the  bank. 

A  bank  president  should  know  his  customers,  the  strength 
and  weakness  of  those  to  whom  money  is  loaned,  or  who  are 
likely  to  ask  for  loans.  The  bank's  prosperity  depends  largely 
on  the  sagacious  lending  of  its  resources. 

A  successful  bank  president  should  make  a  practice  of  fre- 
quently examining  into  the  condition  of  the  bank's  affairs, 
making  a  searching  and  thorough  examination,  taking  off  a 
balance,  counting  the  cash,  and  generally  making  a  careful  in- 
spection of  all  the  books.  If  this  practice  is  maintained, 
employees  will  seldom,  if  they  are  so  inclined,  attempt  mal- 
feasance. A  bank  that  has  for  its  president  one  that  will  faith- 
fully follow  this  practice,  if  otherwise  judiciously  managed, 
should  never  be  compelled  to  go  into  involuntary  liquidation. 

§  118.  Qualifications  necessary  to  hold  office. 

The  national  banking  laws  specify  the  qualifications  required 
of  directors  serving  as  such  for  said  association,  and  section 
5150  of  said  act  requires  that  "one  of  the  directors  to  be 
chosen  by  the  board  shall  be  the  president  of  the  board." 

In  all  of  the  States  statutes  are  enacted  designating  certain 
officers  that  corporations  must  have,  and  providing  that  such 
officers  shall  be  elected  by  the  board  of  directors.  In  the 
absence  of  such  statutes  placing  the  power  in  the  directors  to 
elect  officers,  the  current  of  authority  is  that  the  power  then 
lies  in  the  stockholders. 

The  statute  of  the  State  providing  that  an  officer  shall  be 
selected  from  the  stockholders  is  mandatory. 


cii.  IX.]  Ba:xking.  121 

§119.  The  president's  powers. 

The  president  having  been  duly  elected  to  preside  over  the 
bank,  derives  his  powers  from  the  law  governing  corporations 
and  the  bank's  charter,  the  by-laws,  and  the  authority  vested  in 
him  by  the  board  of  directors.  When  chosen  he  becomes  the 
presiding  officer  of  the  board,  and  ex  officio  is  president  of  the 
bank.  His  position,  however,  does  not  give  him  extraordinary 
powers  or  authority  greater  than  any  other  director. 

As  president  of  the  board  of  directors  it  becomes  his  duty 
to  preside  at  all  meetings  held  by  them,  and  as  such  presiding 
officer  he  is  authorized  to  call  the  meeting  to  order,  puts  all 
motions  presented  for  adoption;  and  is  entitled  to  vote  upon 
every  question  presented;  and  have  his  vote  recorded  in  like 
manner  as  other  directors.  His  position  and  election  as  presi- 
dent of  the  board  does  not  make  him  the  chief  managing  agent 
of  the  bank.  This  power  may  be  conferred  upon  him,  but 
is  not  established  by  his  selection  as  president  of  the  board  of 
directors.  The  office  of  president  of  the  board  does  not  carry 
with  it  inherent  power  as  the  chief  executive  or  managing 
agent  of  the  bank. 

The  charter  may  prescribe  that  the  president  of  the  board 
of  directors  shall  be  the  chief  executive  and  managing  agent  of 
the  bank.  In  the  absence  of  such  power  in  the  charter,  the 
by-laws  of  the  bank  when  duly  adopted  may  confer  upon  him 
enlarged  powers^  particularly  designating  and  defining  his 
duties  and  powers,  and  practically  thereby  making  him  the 
chief  executive  agent  of  the  bank. 

In  the  absence  of  such  a  by-law  the  board  of  directors  may, 
by  proper  resolution,  enlarge  his  powers  beyond  those  enumer- 
ated either  in  the  charter  or  the  by-laws;  but  the  board  cannot 
delegate  to  the  president  a  power  vested  by  law  in  them  which 
the  law  imposes  upon  them  to  execute  and  perform. 

His  executive  powers  inherently  are  limited,  but  in  the 
holding  of  the  office,  he  is  regarded  as  having  charge  of  the 
affairs  of  the  bank;  and  the  public  generally  concedes  to  him 
authority  which,  in  fact,  he  does  not  possess.  Independent  of 
his  inherent  or  ex  officio  powers,  his  acts  must  be  authorized, 
acquiesced  in,  or  subsequently  ratified  by  the  board  of  director? 
in  order  to  bind  the  bank. 

Usage  and  custom  may  confer  upon  him  certain  power  and 


122  The  Pkesident.  [ch.  is. 

authority,  and  he  may  bind  the  bank;  but  where  his  acts  are 
clearly  beyond  those  authorized  by  usage  and  custom,  and  are 
such  as  to  lead  a  customer  of  the  bank  to  question  them,  the 
bank  will  not  be  held  responsible. 

His  powers,  therefore,  in  the  management  of  the  bank 
should  be  delegated  to  him. 

He  is  an  agent  of  the  board  of  directors,  and  must  per- 
form the  duties  ^vithin  the  scope  and  authority  of  his  agency. 

As  previously  stated,  his  inherent  power  is  limited. 

In  the  absence  of  any  order  of  the  board  of  directors,  the 
president  of  a  banking  corporation  has  the  inherent  power  to 
employ  coimsel,  and  manage  the  litigation  of  a  bank.^ 

He  has  the  power  by  virtue  of  his  position  to  take  charge  of 
all  the  litigation  in  which  the  bank  may  be  involved.  He  may 
engage  and  retain  counsel,  and  enter  into  an  agreement  as  to 
compensation.  He  may,  without  previously  submitting  the 
question  to  the  board  of  directors,  bring  suits  in  the  name  of 
the  bank;  and  also  appear,  answer  and  defend  the  bank  when 
sued.  An  exception  to  this  right  may  arise,  where  the  bank 
through  an  action  of  the  board  of  directors,  have  engaged  an 
attorney  to  attend  to  all  the  litigation  in  which  the  bank  may 
become  involved. 

In  the  case  of  the  Pacific  Bank  v.  Stone,  121  Cal.  202,  the 
court  says:  "  The  president  or  acting  president  of  an  insolvent 
bank,  has  no  authority  by  virtue  of  his  office  merely  to  retain 
spechil  counsel  in  addition  to  the  attorneys  of  the  bank  regu- 
larly employed  to  assist  in  litigation  for  the  bank;  without  the 
sanction  or  ratification  of  the  board  of  directors.  *  *  * 
AVe  can  perceive  no  reason  Avhy  a  bank  president  should  be 
clothed  with  ex  officio  powers  greater  than  those  of  presidents 
of  any  other  corporation.  As  director  he  derives  his  authority 
from  the  same  source  as  presidents  of  other  corporations  or- 
ganized under  the  statutes,  and  as  the  presiding  officer,  his 
functions  and  powers  in  the  management  of  the  corporate 
business  are  no  greater  than  any  other  director."  " 

Reasoning  from  the  case  reported  in  121  Cal.  202,  the  in- 
herent power  vested  in  the  office  of  president  of  the  board  of 
directors  and  ex  officio  president  of  the  bank,  is  co-ordinate 

1  Citizens'  National  Bank  v.  Berby,  2  Wickersham    v.    Crittenden,    93 

37  Tac.  Rep.   131.  Cal.  17. 


cir.  IX.]  Bankixg.  123 

only  -^vitli  that  of  anv  other  director,  and  the  single  power, 
namely,  that  of  employing  counsel  and  representing  the  bank 
in  all  of  its  litigation,  may  be  taken  away  from  him  by  a  resolu- 
tion of  the  board  of  directors,  but  in  the  absence  of  this  act  on 
the  part  of  the  board,  or  a  provision  in  the  by-laws  of  the 
bank,  divesting  him  of  his  power  as  president  of  the  bank,  he 
has  the  authority  to  employ  counsel  and  conduct  the  litigation 
of  the  bank;  and  it  is  immaterial  whether  the  power  of  refer- 
ence is  lodged  in  the  president  and  directors,  or  in  the  stock- 
holders assembled  in  general  meeting;  for  the  entire  corpora- 
tion is  represented  in  court  by  its  counsel,  whose  acts  in  con- 
ducting the  suit  are  presumed  to  be  authorized  by  the  party.^ 

The  president  of  a  national  bank  has  power,  by  virtue  of  his 
office,  to  compromise  or  release  a  debt  due  the  bank.  As- 
sociate Justice  Stevens,  of  the  Court  of  Civil  Appeals,  in  dis- 
cussing the  inherent  power  of  the  president  of  a  bank  to 
compromise  a  debt  due  the  bank,  says  that  in  the  absence  of 
usage  or  authority  otherwise  derived  from  the  board  of  direc- 
tors, the  powers  of  a  bank  president  go  little  beyond  those  of 
any  other  individual  director,  and  the  doctrine  laid  down  in 
Farmers'  Xational  Bank  v.  Templeton,  40  S.  W.  412,  is  in 
substance  that  the  president  of  a  bank  has  power  by  virtue  of 
his  office,  to  release  or  compromise  a  debt  due  the  bank  when 
usage,  and  pre^'ious  course  of  business  has  sanctioned  such  a 
power. 

It  is  also  held  in  the  case  of  Guernsey  v.  Black  Diamond 
Coal  Co.,  99  Iowa  471,  that  the  president  of  a  bank  has  au- 
thority by  virtue  of  his  office,  to  assign  a  judgment  which  has 
been  obtained  and  owned  by  the  bank. 

Where  a  clerk  employed  in  a  bank  has  absconded  and  taken 
funds  of  the  bank,  the  president  is  authorized  to  offer  a  re- 
ward for  information  which  may  lead  to  the  arrest  or  con- 
\nction.^ 

As  is  shown,  his  powers  inherent  in  his  office  are  limited; 
but,  as  stated,  he  may  exercise  power  and  bind  the  bank  by 
usage,  where  the  board  of  directors  has  full  knowledge  of  such 

3  The  Alexandria  Canal  Company  Insurance    Company    v.    Oakley,    9 

V.   Swann,   5   Howard   83:    Citizens'  Paifje   (X.  Y. )    496. 

National  Bank  of  Kingman  v.  Berry.  -iBank  r.  Griffin,   168  111.  341,  48 

53  Kan.  696,  37  Pae.  131 ;  American  N.  E.  154. 


124  The  President.  [cji.  ix. 

acts,  and  from  time  to  time  acquiesce  and  make  no  objection, 
his  acts  will  be  considered  as  authorized. 

It  has  been  held  that  where  the  president  has  borrowed 
money  and  executed  a  note  in  the  name  of  the  bank,  without 
authority  from  the  board  of  directors,  or  resolution  to  that 
eifect,  and  they  have  the  knowledge  of  transactions  of  this 
nature,  and  acquiesce  in  the  same,  the  bank  will  be  bound.^ 

The  president  is  clothed  with  implied  power  to  indorse 
negotiable  paper  in  the  ordinary  transactions  arising  in  the 
bank's  business.^ 

In  the  case  of  Winton  v.  Little,  94  Pa.  St.  64,  it  is  held  that 
wdiere  the  president  -^nthout  authority  released  a  lien  of  a 
judgment  belonging  to  the  bank,  that  the  bank  had  a  knoAvl- 
edge  of  the  fact  and  acquiescing  therein  for  a  long  period  of 
time,  was  bound  by  his  acts. 

The  president,  it  would  seem,  has  the  authority  to  enter  into 
an  agreement  with  a  person  to  receive  money  on,  or  in  pay- 
ment of  a  note  at  a  place  other  than  the  place  of  payment, 
and  to  forward  the  money  to  the  bank  where  the  note  is  held 
and  where  payable.'^ 

This  rule  seems  to  be  in  conflict  with  the  rule  holding  a 
cashier  responsible  for  the  money  received  or  collected  for  the 
bank  while  absent  and  away  from  the  bank. 

The  president's  acts  may  be  those  which  appear  to  have  been 
executed  in  an  individual  capacity,  but  in  fact  are  the  acts  of 
the  bank. 

In  the  case  of  Van  Leuven  v.  First  Xational  Bank  of  Kings- 
ton, 54  X.  Y.  671,  it  is  held  that  where  the  president  re- 
ceived government  securities  to  exchange,  and  he  gave  a  re- 
ceipt as  an  individual,  executing  the  same  upon  bank  paper, 
his  act  was  held  to  be  the  bank's  act. 

TTie  contracts  of  the  president  entered  into  with  individuals, 
who  at  the  time  believed  that  he  was  acting  in  his  official 
capacity,  and  authority  as  manager  and  president  of  the  bank, 
his  acts  will  bind  the  bank,  especially  so  if  the  bank  receives 
the  benefit  of  the  transaction.* 

B  National   Bank  of  Commerce  v.  7  Vilas   Nat'l   Bank   v.   Strait,   58 

Atkinson,  55  Fod.  Rep.  4G5.  Vt.  448. 

6U.    R.    National    Bank    r.    First  8  Tremont  Bank   v.  Paine,  28  Vt. 

National    Bank   of   Little   Rock,   79  24. 
Fed.  Rep.  290. 


CH.  IX.]  Banking,  125 

The  failure  upon  the  part  of  the  president  to  designate 
himself  in  the  contract  as  president  of  the  bank,  if  at  the 
time  he  was  in  fact  acting  as  such,  such  facts,  if  shown,  the 
bank  will  be  bound  bv  his  act.  The  question  is  one  of  fact 
and  is  one  for  the  jury  to  determine.^ 

As  we  have  sho^^^l,  the  inherent  power  in  the  president  is 
confined  to  only  a  very  few  acts,  but  as  stated,  his  powers  may 
be  enlarged  by  direct  authority  from  the  board  of  directors, 
and  they  may  make  him  the  exclusive  manager  of  the  bank's 
affairs,  and  authorize  him  to  perform  any  and  all  acts  other 
than  those  which  the  law  compels  them  personally  to  perform. 

He  may,  as  general  manager  of  a  bank,  perform  all  the 
ordinary  transactions,  but  being  delegated  with  the  power  as 
general  manager,  does  not  give  him  authority  to  execute  notes 
and  borrow  money  for  the  bank. 

The  above  rule  is  supported  by  many  leading  authorities. 

In  the  State  of  Arkansas  we  find  the  rule  laid  down  in  the 
case  of  City  Electric  Street  Railway  Company  v.  First  Na- 
tional Exchange  Bank,  62  Ark.  33,  as  follows:  "It  may  be 
stated  as  a  general  proposition  that  the  president  and  secretary 
of  a  corporation  are  not  empowered  to  bind  it  by  their  signa- 
ture to  commercial  paper,  unless  the  authority  is  expressly 
conferred  by  the  charter,  or  given  by  the  board  of  directors. 
They  have  no  inherent  power  to  execute  negotiable  notes  in 
the  name  of  the  corporation.  Tied,  on  Com.  Paper,  §  121; 
Cook  on  Stock,  etc.,  §  716;  McCullough  v.  Moss,  5  Den.  567; 
4  Thompson  on  Corp.,  §  4619;  Life  &  Fire  Ins.  Co.  v.  Me- 
chanic Fire  Ins.  Co.,  7  Wend.  31;  Hyde  v.  Larkin,  35  Mo.  App. 
365;  Pierce  on  Railroads,  §§  32-34;  Walworth  County  Bank 
V.  Farmers'  Loan,  etc.,  Co.,  14  Wis.  325;  1  Morawetz  on  Corp. 
§  537;  Titus  v.  Railroad  Co.,  37  K  J.  L.  98-102;  Wait  v. 
Nashua  Armory  Ass'n,  23  Atl.  Rep.  77,  and  authorities  there 
cited;  National  Bank  v.  Atkinson,  55  Fed.  Rep.  465." 

In  New  York  the  rule  adopted  by  the  Supreme  Court  of 
Judicature,  in  1831,  in  the  case  of  Life  &  Fire  Insurance  Com- 
pany V.  The  Mechanics'  Fire  Company  of  New  York,  7  Wend. 
31,  is  laid  down  by  the  court  as  follows,  "  Such  authority  is 
not  implied  from  his  appointment  as  president;  as  such  he 
is  merely  the  presiding  officer  of  the  board  of  directors,  chosen 
9  Northern  National  Bank  v.  Lewis,  78  Wis.  475,  47  N.  W.  834. 


126  The  President.  [cii.  ix. 

by  them  from  tlieir  own  body,  and  has  no  more  authority  from 
the  charter  to  bind  the  company  by  any  of  his  acts  than  any 
other  director  has;  his  powers  are  such  only  as  the  board  of 
directors,  either  by  their  by-laws  or  otherwise,  think  proper  to 
confer  upon  him." 

This  rnle  of  law  is  the  rule  now  in  force  in  the  State  of 
N^ew  York.  It  is  the  general  rule  and  is  upheld  by  the 
courts  of  all  the  States. 

The  rule,  as  laid  down  in  one  of  the  later  cases,  and  stated 
by  District  Judge  Riner,  in  the  case  of  National  Bank  of 
Commerce  v.  Atkinson,  55  Fed.  Rep.  465,  is  substantially 
the  same  rule  as  laid  down  by  the  court  in  New  York  in  1831. 

The  court,  in  the  latter  case,  states  the  rule  to  be  that  "  the 
president  of  a  national  bank  has  no  power  inherent  in  his 
office  to  bind  the  bank  by  the  execution  of  a  note  in  its  name, 
but  power  to  do  so  may  be  conferred  on  him  by  the  board  of 
directors,  either  expressly,  by  resolution  to  that  effect,  or  by 
subsequent  ratification,  or  by  acquiescence  in  transactions  of  a 
similar  nature  of  which  the  directors  have  notice." 

There  is  a  strong  tendency  upon  the  part  of  the  court  and 
authors  of  text  works  treating  upon  this  subject  at  the  present 
time  to  establish  a  more  liberal  rule.  One  which  may  be 
stated  as  follows:  ''  The  extent  of  the  powers  of  agents  of  a 
well  defined  class,  such  as  presidents,  directors  or  cashiers,  is 
determined  largely  by  general  custom,  of  which  the  courts 
will  take  judicial  notice,  and  parties  dealing  with  such  agents 
are  entitled  to  assume  that  they  possess  all  the  powers  which 
are  usually  accorded  to  agents  of  the  class  to  which  they  be- 
long." ^" 

Mr.  Morawetz  holds  that  the  authority  of  officers  of  banks 
is  fixed  by  general  custom,  of  which  the  courts  will  take  judi- 
cial notice,  and  that  they  are  not  held  to  the  strict  iiile  which 
applies  to  officers  of  other  corporations. 

Banks  are  not  incorporated  for  the  purpose  of  borrowing 
money.  It  is  their  business  to  receive  money  on  deposit  and 
reloan  the  same  together  with  such  portion  of  the  capital,  and 
reserve  fund,  as  the  law  will  permit.  There  should  but  few 
occasions    arise    presenting    the    necessity   of   a    banking   cor- 

10  Morawetz,  Priv.  Corp.,  vol.  1  ]\[o.  App.  .305,  ami  cases  cited  in  re- 
(2  ed.),  §  509;  Hyde  v.  Larkin,  35       spondent's  brief. 


cii.  IX.]  Baxkixg.  127 

poration  to  borrow  money.  The  general  rule  which  has  been 
conceded  to  be  the  law  for  so  many  years  should  not  be 
weakened  upon  the  theory  that  a  more  liberal  one,  would  be 
of  special  benefit  to  the  public  or  banking  corporation.  At 
least  the  borrowing  of  money  by  the  president  of  a  bank  with- 
out direct  authority,  should  not  be  sanctioned  by  the  law  as 
justifiable,  and  lawful  upon  the  theory  that  it  is  or  has  been 
a  practice  or  custom  of  the  bank. 

The  president  has  the  implied  power  to  indorse  negotiable 
paper  in  the  ordinary  transaction  of  the  bank's  business;  and 
authority  for  this  purpose  need  not  be  conferred  upon  him  by 
the  board  of  directors.^^ 

It  is  laid  down  in  the  case  of  Simons  v.  Fisher,  55  Fed.  Rep. 
905,  that  where  the  president  exercises  the  function  of  cashier, 
and  is  the  managing  officer  of  the  bank,  the  bank  will  be  bound 
by  such  acts  of  his  as  belong  virtute  offici  to  the  office  of  cashier. 

§  120.  President's  powers  derived  from  statute. 

Where  a  statute  of  a  State  confers  a  power  upon  an  officer 
of  a  corporation,  there  can  be  no  necessity  of  a  by-law  or 
resolution  of  the  board  of  directors  authorizing  him  to  exe- 
cute the  power. 

In  some  of  the  States  special  statutes  have  been  enacted 
providing  that  many  matters  may  be  conducted  in  the  presi- 
dent's name. 

In  the  case,  Delafield  v.  Kinney,  24  Wend.  (X.  Y.)  345,  a 
suit  against  a  banking  association  formed  under  the  general 
banking  laws  of  the  State,  it  is  held,  may  be  brought  against 
it  either  in  the  name  of  the  association  or  in  that  name  with 
the  addition  of  the  name  of  the  president  thereof. 

§  121.  Limited  and  prohibited  power  of  president. 

The  president  of  a  bank,  like  the  cashier,  cannot  certify 
his  own  check.  Such  certification  appears  on  its  face  and  is 
notice  of  fraud  to  all.^^ 

The  president  has  no  inherent  power  to  transfer  or  indorse 
negotiable  paper,  but  through  a  custom  or  habit  of  performing 

n  United     States    Nat.    Bank    v.  12  Chrj-stie  v.  Foster,  61  Fed.  Kep. 

First  Nat.  Bank  of    Little  Rock,  79       551. 
Fed.  Rep.  296. 


128  The  President.  [ch.  ix. 

such  acts  which  are  well  known  to  the  hoard  of  directors,  they 
become  lawful  acts  and  cannot  be  denied  bj  the  bank.^^ 

As  president  of  the  bank  he  has  no  authority  by  virtue  of  his 
office  to  receive  the  claims  of  a  bank  as  against  a  debtor.  That 
power  rests  alone  with  the  board  of  directors;  and  in  order 
to  bind  the  bank,  the  consent  of  the  board,  either  directly 
or  by  implication,  must  be  first  obtained.^'* 

Xeither  has  he  authority  by  virtue  of  his  office  to  use  any 
portion  of  the  assets  of  the  bank  to  settle  with  the  bank's  credit- 
ors. He  may,  however,  do  so,  if  the  power  is  conferred  upon 
him  by  the  board  of  directors.  Neither  has  he  the  authority 
to  mortgage  the  property  of  the  bank,  but  when  authorized 
to  do  so,  may  execute  a  mortgage  upon  the  bank's  property. 

Xeither  has  he  inherent  power  to  stay  the  collection  of  an 
execution  against  the  property  of  a  judgment  debtor.  The 
board  of  directors  alone  are  endowed  with  this  power.^^ 

ISTor  has  he  authority  inherent  in  his  office  to  enter  into 
agreements  or  contracts  on  behalf  of  the  corporation,  but  it  is 
held  that  this  power  may  be  conferred  upon  him  by  the  board 
of  directors. 

As  an  officer  of  the  bank  he  has  no  implied  authority  to  give 
away  any  portion  of  the  corporate  property,  or  to  create  a 
gratuitous  corporate  obligation  binding  on  the  corporation.^^ 

If  as  president  of  the  bank  he  holds  out  to  the  public  that 
certain  powers  have  been  delegated  to  him,  and  it  is  believed 
by  parties  dealing  with  him  that  he  is  acting  within  the  scope 
of  his  power,  his  acts  are  binding  upon  the  bank.^^ 

A  commercial  banking  corporation  doing  a  banking  business 
and  refusing  to  pay  interest  on  deposits,  advertising  that  it 
does  not  pay  interest,  its  president  has  no  power  or  authority  to 
enter  into  an  agreement  with  a  customer  to  pay  interest,  and 
if  such  a  contract  is  entered  into  in  violation  of  the  rule,  and 
advertisement  of  the  bank,  it  cannot  be  held  responsible  for  the 
interest.  An  agreement  to  pay  interest  on  deposits  of  money 
deposited  in  a  commercial  bank  is  no  part  of  the  ordinary  busi- 

13  United  States  Xat.  Bank  v.  16  Robertson  v.  Buffalo  County 
First  Nat.  Bank,  79  Fed.  Rep.  20G.       Xat.  Bank,  58  N.  W.  715. 

14  Olnev  r.  Chadsev,  7  R.  I.  224.  IT  Farmers'  Bank  v.  McKee,  2  Pa. 
15Spyker  r.  Spenee,  8  Ala.  .3.33.            St.  318. 


en.  IX.]  Ban^kixg.  129 

ness  of  the  bank,  and  the  president  has  no  power  to  bind  the 
bank  to  pay  interest  in  such  cases.^^ 

AVhere  a  bank  is  entitled  to  and  makes  it  a  part  of  its  busi- 
ness to  take  special  deposits,  the  president  cannot  charge  the 
bank  with  anj  extraordinary  liability  in  regard  to  such  deposits. 
He  has  no  power  or  authority  by  virtue  of  his  office  to  com- 
promise a  debt.     This  duty  belongs  to  the  board  of  directors. ^"^ 

The  president  of  a  bank  is  ^'ithout  authority  to  release  a 
judgment  which  has  been  entered  in  a  court  of  record,  in  favor 
of  the  bank,  unless  duly  authorized  by  the  board  of  directors. 

The  satisfaction  or  release  should  set  out  that,  it  was  ordered 
by  the  board  of  directors,  and  it  should  have  the  seal  of  the 
bank  attached.  Where  the  president  performs  acts  which  are 
not  implied  or  inherent  in  his  office,  but  which  are  afterwards 
ratified  by  the  board  of  directors,  they  become  the  legal  acts 
of  the  bank,  and  where  a  bank  retains  the  proceeds  derived 
from  the  sale  of  property,  and  guaranty  of  notes  owned  by  the 
bank,  the  fact  that  the  bank  retains  the  proceeds,  operates  as 
a  ratification  of  the  president's  acts  in  the  selling  of  the  prop- 
erty, whether  he  was  authorized  or  not.^° 

An  agreement  by  the  president  and  cashier  of  a  bank,  that 
an  endorser  shall  not  be  liable  on  his  indorsement  is  not  bind- 
ing on  the  bank.  It  is  not  within  the  scope  of  their  duties,  and 
they  cannot  bind  the  principal  except  in  the  discharge  of  their 
ordinary  duties."^ 

§  122.  Representations  and  admissions,  effect  of. 

The  general  rule  is  that  the  president  of  a  bank,  by  admis- 
sions and  representations,  may  bind  the  same,  if  such  admis- 
sions or  representations  relate  to  matters  within  the  scope  of 
his  agency,  and,  like  other  agents,  he  must  act  within  the  scope 
of  his  authority  to  bind  the  principal." 

18  Fulton  Bank  v.  New  York  &  Parsons  Slerd.  Law,  140  note  1 ; 
Sharon  Canal  Co.,  4  Paige  (N.  Y. )  Bank  r.  Dunn,  G  Pet.  51;  Bank  c. 
127.  Jones,  8  Pet.   IG;  Minor  i:  Bank,  1 

19  Rvan  r.  Manufacturers'  &  Mer-  Pet.  4G ;  Hodge  v.  Bank,  22  Gratt. 
chants'  Bank,  9  Daly,  .308.  51;    Harrisburg    Bank    r.    Tvlor.    3 

20  Thomas  r.  City  National  Bank,  W.  &  S.  .373 ;  Merchants'  Bank  r. 
59  X.  W.  943.  :\Iarine  Bank,  3  Gill.  90;   Crump  i: 

21  First    National    Bank    of    Stur-  U.  S.  Mining  Company.  7  Gratt.  352. 
gess  r.  Bennett,  33  Mich.  520;  Angel  22  Panhandle    National    Bank    r. 
&    Ames    on    Corporations.    §§    298,  Emery,  78  Tex.  498,  15  S.  W.  23. 
301,  309;    Storv  on  Agency,  §   115; 

9 


130  The  President.  [cir.  ix. 

The  president  of  a  national  bank  has  no  inherent  anthority 
to  make  sncli  admissions  as  will  release  the  maker  of  a  note 
from  his  liability.^^ 

Xeither  can  the  ]n'osident  of  a  bank  by  admissions  charge 
the  same  with  a  debt.^* 

In  the  case  of  AVashington  Xational  Baiik  v.  Pierce,  6  AVash. 
491  (33  Pac.  972),  it  is  held  that  where  the  president  of  a 
bank  is  informed  by  the  maker  of  a  promissory  note  that  the 
same  was  procured  by  fraud,  and  that  he  (the  maker)  would 
not  pay  it,  the  remark  not  being  made  to  the  president  in  his 
official  capacity,  nor  at  the  bank,  does  not  bind  the  bank.  Such 
knowledge  does  not  estop  the  bank  from  subsequently  dis- 
counting the  note. 

§  123.  President  liable  to  bank  for  acts  which  amount  to  breach 
of  trust. 

Where  the  law  forbids  overdrafts,  and  the  president  or 
cashier  permit  the  overdrawing  of  the  account  of  a  customer, 
and  through  such  overdraft  a  loss  occurs  to  the  bank,  the 
president  authorizing  the  same  becomes  personally  liable.^ 

In  a  review  of  the  opinion  in  the  case  of  the  Oakland  Bank 
of  Savings  v.  "Wilcox,  it  was  found  that  the  president  was  sub- 
ject to  the  by-laws  and  direction  of  the  board  of  directors. 
There  is  no  provision  found  in  these  by-laws  permitting  a 
customer  to  overdraw  his  account. 

It  was  the  duty  of  the  auditing  committee  to  supervise  and 
direct  the  mode  in  which  the  business  was  to  be  conducted.  It 
was  their  duty  to  count  the  cash  and  examine,  or  cause  to  be 
examined,  the  books,  vouchers,  documents,  papers  and  other 
assets  of  the  corporation. 

The  duties  as  they  here  appear,  devolved  upon  various  per- 
sons; but  this  was  held  not  to  discharge  the  president  in  the 
failure  to  perform  his  dut3\ 

The  lower  court  in  the  trial  of  the  cause,  in  giving  his 
instructions,  granted  the  following  instruction  to  the  jury: 

"  It  has  been  said  to  you,  gentlemen,  during  the  argument 

23  Farmers'  National  Bank  r.  25  Oakland  Bank  of  Savings  V. 
Templeton,  40  S.  W.  412.                          Wilcox,  60  Cal.  120. 

24  Henry    r.    Northern    Bank    of 
Alabama/63  Ala.  527. 


CH.  IX.]  Banking.  131 

of  the  case,  that  it  Avas  a  usage  at  the  bank  to  allow  customers 
to  overdraw,  and  have  checks  and  notes  charged  np  without 
present  funds  in  the  bank.  I  Ijelieve  there  is  evidence  before 
you  showing  the  existence  of  such  a  usage  to  a  certain  extent. 
The  fact,  however  it  may  be,  is  for  you  to  find.  But  I  say 
to  you,  as  a  matter  of  law,  that  if  such  a  usage  did  exist,  it 
would  not  justify  an  officer  of  the  bank  in  case  of  loss.  The 
usage  is  still  nothing  more  than  usage  and  practice  to  mis- 
apply the  funds  of  the  bank,  and  to  connive  at  the  with- 
drawing of  the  same  without  any  security.  Such  a  usage  and 
practice  is  a  manifest  departure  from  the  duty  both  of  the 
directors  and  president  of  the  bank  as  cannot  receive  any  coun- 
tenance in  a  court  of  justice.  It  cannot  be  done  by  the  sanction 
or  approval  of  any  officer  of  the  bank,  and  when  done  it  is  at 
his  ovra  peril  and  responsibility,  especially  if  done  in  his  own 
interest." 

The  foregoing  instruction  may  be  criticized  by  the  courts  as 
too  broad,  but  it  is  wholesome  advice  to  officers  having  charge 
of  funds  deposited  in  the  bank. 

The  instruction  as  given  the  court  justly  says  may  be  too 
broad,  but  declares  it  to  be  applicable  and  justifiable  in  this 
case. 

Where  the  president  takes  a  note  which  is  burdened  with  a 
guaranty,  and  which  is  liable  to  cause  loss  to  the  bank,  it  is 
held  in  the  case  of  Stearns  v.  Laurence,  83  Fed.  Rep.  738,  to 
be  such  negligence  in  case  of  loss,  as  will  render  him  liable  to 
the  bank,  and  where  the  president  sells  property  of  the  bank 
without  first  obtaining  the  authority  from  the  board  of 
directors  to  do  so,  and  loss  occurs,  he  is  liable  to  the  bank.^*^ 

"Where  the  president  of  a  bank,  by  false  statements  in  rela- 
tion to  its  affairs,  when  such  statements  are  officially  made, 
and  loss  occurs  to  one  who  has  relied  upon  such  statements,  the 
president  is  personally  liable.^^ 

The  ISTational  Banking  Act,  by  provision  of  section  5209, 
makes  a  false  statement  of  the  affairs  of  a  national  bank  a 
misdemeanor. 

A  false  entry  or  statement  is  one  which  is  intended  to  deceive 
and  represent  that  which  is  false  as  true.     The  Supreme  Court 

26  First  Nat.  Bank  of  Central  City  27  Prewitt,  Trustee,  v.  Trimble,  92 

V.  Lucas,  21  Neb.  281.  Ky.  176. 


132  The  Pkesidext.  [cit.  ix. 

of  the  United  States  says,  "  that  where  a  president  of  a  bank 
placed  on  its  books  to  his  own  credit  at  their  face  value  bonds 
known  to  him  to  be  worthless  or  of  small  value,  without  the 
authority  of  the  board  of  directors  or  stockholders,  the  fact 
that  he  gave  a  guaranty  of  payment  of  the  bonds  on  demand, 
does  not  relieve  him  from  liability;  or  of  an  intent  to  defraud 
the  bank  by  misapplying  its  money,  although  at  the  time  he 
was  solvent  and  intended  to  pay  his  guarantee  on  demand." 

§  124.  President  borrowing  from  bank. 

The  president  of  a  bank,  unless  expressly  prohibited  by  stat- 
ute, may  borrow  money  from  the  bank,  as  any  other  person 
may,  and  execute  a  valid  note  for  the  same  that  will  bind  him 
as  well  as  the  bank  receiving  it.  Such  a  note  is  not  void,  nor 
in  the  absence  of  fraud  it  cannot  be  repudiated  or  avoided  by 
the  bank.^^ 

The  president  of  a  bank  should  not  be  permitted  to  borrow 
its  funds,  without  the  consent  of  the  finance  committee;  and 
in  the  absence  of  such  a  committee,  the  loan  should  be  passed 
i:pon  by  the  board  of  directors. 

The  statutes  of  some  of  the  States  limit  the  amount  which 
may  be  borrowed  from  State  banks  by  any  one  person.  The 
by-laws  may  control  this  privilege  where  the  statute  is  silent 
upon  the  subject. 

The  national  banking  act  places  a  restriction  or  limitation 
against  making  loans  to  any  association,  person,  company,  cor- 
poration or  firm  in  excess  of  one-tenth  part  of  the  amount  of 
the  capital  stock  of  such  association  actually  paid  in.  But  the 
discount  of  bills  of  exchange  drawn  in  good  faith  against 
actually  existing  values,  and  the  discount  of  commercial  or 
business  paper  actually  owned  by  the  person  negotiating  the 
same,  shall  not  be  considered  as  money  borroAved. 

This  provision  of  the  statute  does  not  prohibit  an  ofiicer  or 
director  from  borrowing  money,  but  limits  the  amount  which 
may  be  borrowed  at  any  one  time.  This  is  a  wise  provision  of 
law  and  should  be  strictly  enforced. 

The  various  States  which  have  not  now  a  statute  similar  to 
that  enacted  by  the  United  States,  should  be  urged  to  place 
such  a  law  upon  the  statute  books  of  the  State. 

2S  Blair  v.  Bank  of  Mansfield,  10   Lg.  N.  S.  94. 


CH.  IX.]  Banking.  133 

Officers  and  directors  of  savings  banks  are  by  statutes  passed 
in  most  of  the  States,  prohibited  from  borrowing  any  of  the 
funds  from  the  banks  over  which  they  act  and  preside. 

The  penalty  prescribed  by  the  National  Bank  Law  for  a  vio- 
lation of  its  provisions,  prohibiting  any  one  person  from  bor- 
rowing to  exceed  10  per  cent,  of  its  capital  actually  paid  in, 
only  subjects  the  bank  to  a  forfeiture  of  its  charter. 

The  loan  may  be  collected,  although  made  in  excess  of  the 
amount  prescribed.     The  bank  can  recover  the  full  amount.^'' 

Section  578,  Civil  Code,  California,  provides  that:  *'  Xo 
director  or  officer  of  any  savings  and  loan  corporation  must, 
directly  or  indirectly,  for  himself  or  as  the  partner  or  agent 
of  others,  borrow  any  of  the  deposits  or  other  funds  of  such 
corporation,  nor  must  he  become  an  indorser  or  surety  for 
loan  to  others,  nor  in  any  manner  be  an  obligor  for  moneys 
borrowed  of  or  loaned  by  such  corporation.  The  office  of  any 
director  or  officer  who  acts  in  contravention  of  the  provisions 
of  this  section  immediately  thereupon  becomes  vacant." 

This  section  operates  as  a  prohibition  to  the  bank  in  making 
or  accepting  a  loan  made  to  it  by  an  officer  or  director;  and 
is  a  violation  of  its  charter.  The  making  of  such  a  loan  may 
be  sufficient  grounds  for  an  action  against  it  to  declare  the 
same  forfeited;  but  such  an  action  when  brought  must  be  in- 
stituted by  the  Attorney-General  of  the  State,  in  a  suit  brought 
by  him  in  the  name  of  the  people. 

Where  a  statute  by  its  provisions  declares  that  if  a  person 
holding  an  office  in  a  private  corporation  violates  the  expressed 
provisions  of  the  same,  and  that  the  office  thereupon  imme- 
diately becomes  vacant,  the  vacancy  may  be  filled  as  the  law 
or  the  charter  may  provide.  But  where  there  is  no  provision 
in  the  charter  or  by-law  authorizing  such  vacancies  to  be  filled, 
the  office  remains  vacant  until  the  next  general  election,  when 
it  may  be  filled  as  provided  for  by  the  statute  governing  such 
provisions. 

The  office  of  a  bank  director  or  president  is  a  private  office, 
and  the  general  laws  of  the  State  affecting  vacancies  in  public 
offices  does  not  apply.  The  power  to  declare  the  office  vacant 
in  a  banking  corporation  is  vested  in  the  board  of  directors. 

2!)  Gold  Mining  Company  r.  National  Bank,  96  U.  S.  G40 ;  Corcoran 
V.  Batchelder,  147  Mass.  541. 


134  The  President.  [cit.  ix. 

A  statute  which  declares  that  the  office  of  a  director  in  a 
private  corporation  shall  become  vacant  upon  the  happening  of 
a  certain  event,  to  wit:  the  violation  of  a  law,  which  fails  to 
provide  the  mode  of  filling  the  same,  such  vacancy  can 
only  be  filled  under  the  provisions  of  the  law  governing  such 
corporations. 

The  fact  that  an  officer  of  a  banking  corporation  borrows 
money  of  the  bank  in  violation  of  the  statute,  wdiicli  declares 
that  he  must  not  do  so,  does  not  prevent  the  bank  from  en- 
forcing the  collection  of  the  debt.^'^ 

§  125.  President's  compensation. 

The  president  of  a  bank  is  entitled  to  compensation  for 
services  rendered  to  the  corporation;  but  there  is  no  implied 
promise  to  par  him  because  he  has  been  elected  by  the  board  of 
directors  as  its  president;  and  he  is  not  entitled  because  of  his 
position  to  compensation,  any  more  than  any  other  director 
wdio  may  perform  services  for  the  corporation. 

The  president,  however,  when  he  has  been  delegated  and 
selected  as  the  general  manager  of  the  bank;  and  devotes 
his  energy  and  time  to  the  bank's  affairs,  his  salary  is  usually 
fixed  by  the  board  of  directors;  but  if  no  action  is  taken  by 
the  board  in  fixing  the  amount  to  be  paid  him,  he  can  recover 
for  his  services  only  such  a  sum  as  may  be  deemed  reasona- 
ble for  the  labor  performed. 

It  is  held  that  the  president  of  a  bank  w^ho  superintended 
the  repairs  u]X)n  a  building  situated  upon  real  estate  owned  by 
the  bank,  could  not  recover  for  such  services.  This  would  be 
the  case  where  he  had  previously  been  engaged  upon  a  fixed 
salary;  but  if  no  salary  was  fixed  and  the  services  were  per- 
formed with  the  knowledge  and  consent  of  the  board  of 
directors,  he  could  recover  the  value  of  his  services. 

Tlie  board  of  directors  having  the  authority  to  employ  the 
president,  it  may  discharge  him. 

The  National  Banking  Act  provides  that  it  is  within  the 
power  of  the  board  of  directors  to  "  appoint  a  president  " 
*  *  *  and  "  dismiss  such  officers  or  any  of  them  at  pleasure 
and  appoint  others  to  fill  their  places." 

The  directors  may  remove  the  president  at  any  time  for 

30  Savings  Bank  r.  Burns,  104  Cal.  473. 


cii.  IX.]  Banking.  135 

cause;  and  the  bank  cannot  be  held  liable  to  him  for  the  un- 
expired term.  Under  the  National  Banking  Act  they  may 
remove  him  at  their  pleasure  and  the  bank  cannot  be  held 
liable  for  the  unexpired  term.^^ 

In  the  State  of  Illinois  it  is  held  that  where  the  bank  has 
employed  a  president  at  a  fixed  salary  that  the  directors  have 
no  authority  or  power  to  pay  him  any  sum  as  a  bonus  in  ad- 
dition to  the  salary  fixed.  He  cannot  recover  for  services  or 
acts  performed  for  the  bank,  though  performed  or  coming 
outside  of  his  duties. 

If  the  bank's  charter  provides  that  the  president  shall  not 
be  permitted  to  draw  a  salary,  the  board  of  directors  have  no 
authority  to  engage  to  pay  a  regular  salary;  but  they  may  en- 
gage to  pay  him  for  services  rendered;  and  if  no  stipulation  or 
agreement  is  entered  into  as  to  the  value  of  such  services,  he 
may  recover  for  labor  performed  the  value  of  his  service. 

"Where  the  president  is  actively  engaged  in  the  interests 
of  a  State  bank,  and  the  board  of  directors  have  engaged  his 
services  for  a  fixed  period  of  time,  he  can  be  discharged 
only  for  cause,  and  may  recover  for  the  unexpired  term  if 
discharged  without  cause. 

The  only  exception  to  this  rule  are  the  provisions  of  the 
National  Banking  Act  which  as  stated  provide  that  it  is 
within  the  power  of  the  board  of  directors  to  dismiss  him  at 
their  pleasure  and  appoint  another  to  fill  his  place. 

31  Taylor  v.  Hutton,  43  Barb.  195. 


CHAPTER  X. 


THE  CASHIER. 

§  126.  Cashier,  general  duties  and  qualification. 

The  cashier  of  a  bank  is  elected  by  the  board  of  directors, 
the  term  of  office  being  iisnallv  fixed  at  the  time.  He  should 
be  required  to  give  a  bond  for  the  faithful  performance  of  his 
duties.  The  cashier,  unless  there  be  a  vice-president,  ranks 
next  in  authority  to  the  president,  and  has  certain  specified 
duties  to  perform.  He  is  selected  for  his  business  qualifica- 
tions, and  adaptability  to  the  business  which  he  is  required 
to  transact.  His  specific  duties  are  to  attend  to  the  coiTe- 
spondence.  He  receives  all  letters  and  communications  ad- 
dressed to  the  bank,  and  should  make  it  his  business  to  open 
and  attend  to  the  contents  of  the  same.  All  applications  for 
loans,  discounts,  proposals  for  new  customers,  orders  for  the 
sale  or  purchase  of  stock,  bonds,  letters  asking  for  advice 
concerning  the  standing  of  persons  etc.,  should  be  retained  by 
him  and  when  answered  copies  should  always  be  kept.  Let- 
ters received  containing  statements  of  enclosures,  and  collec- 
tions are  usually  passed  over  to  clerks  having  charge  of  those 
departments  and  by  them  in  due  time  answered. 

His  position  in  a  large  bank  is  one  of  great  responsibility.  He 
must  on  entering  the  bank  each  morning  see  that  all  the  clerks 
are  on  hand.  If  a  vacant  place  is  obseiwed,  it  is  his  duty  to 
supply  the  work  necessary  to  be  performed  during  the  day. 
Some  one  may  be  found  to  take  the  place  or  perform  the 
labor;  if  not,  and  it  becomes  necessary,  the  cashier  should  be 
sufficiently  qualified  to  supply  the  place,  and  perform  the 
labor  himself. 

His  business  is  executive  and  supervisory.  He  is  supposed 
to  be  the  thermometer  of  the  bank,  and  should  be  able  to 
denote  the  condition  and  financial  temperature  of  the  same 
at  any  time. 

It  should  be.  his  imperative  duty  to  examine  daily  the  bal- 
ance books,  and  as  frequently  as  possible  inspect  the  work 
of  clerks,  and  keep  himself  infomied  concerning  the  business 
of  the  bank. 

[1.36] 


CH.  X.]  BA]s^KI^'G.  -       137 

His  position  necessarily  brings  him  continually  in  contact 
with  the  patrons  of  the  bank,  and  through  these  means  he  can 
in  every  proper  way  increase  the  business  of  the  bank.  The 
profits  in  the  business  in  most  banks  are  made  on  the  de- 
posits. To  increase  these,  therefore,  the  cashier  has  the 
greatest  opportunity.  Xew  accounts,  if  desirable,  are  eagerly 
sought.  While  this  is  true,  no  well  conducted  bank  will  blindly 
open  an  account  ^ntli  a  person  \\athout  due  investigation.  A 
depositor,  if  not  kno%vn,  should  be  properly  identified  and 
introduced,  and  before  an  account  is  opened  or  accepted,  his 
character  ascertained;  and  this  investigation  usually  is  the 
business  of  the  cashier. 

The  duties  of  a  cashier  may  depend  in  a  degi'ee  upon  the 
conditions  surounding  the  bank.  The  location,  and  volume  of 
business  which  the  bank  has  may  enlarge  or  lessen  the  detail 
of  labor  and  his  responsibility;  but  it  is  his  duty,  however, 
under  all  circumstances,  to  see  that  all  papers,  valuables  and 
other  property  of  the  bank,  are  in  its  possession.  He  should 
see  that,  at  the  close  of  business,  the  cash  is  properly  and 
safely  placed  in  the  vaults  and  the  doors  securely  fastened. 
It  is  claimed  that,  though  other  officers  may  have  access  to 
the  money  and  other  property  of  the  bank  which  is  confided 
to  the  cashier,  his  responsibility  therefor  is  not  released. 

In  an  important  case  upon  this  subject,  Chief  Justice  Mitchell 
said :  "  We  cannot  know  judicially  what  ofiicers  and  employees 
are  required  for  the  conduct  of  the  business  of  the  bank,  nor 
can  we  define  in  detail  their  several  functions  and  duties. 
These  vary  —  vary  according  to  the  location  and  business  of 
the  bank.  It  is,  however,  a  matter  of  such  common  obser\'a- 
tion  that  courts  cannot  be  ignorant  of  the  fact  that  in  the  ad- 
ministration of  the  daily  affairs  of  a  bank  some  one  besides  a 
cashier  must  have  access  to  its  funds.  It  by  no  means  fol- 
lows that  the  cashier  is  not  so  far  in  possession  as  to  be 
rightfully  held  responsible  to  account  for  the  funds  of  the  bank 
to  the  extent,  perhaps,  of  exhibiting  each  day,  or  whenever 
properly  called  upon,  at  least  the  exact  condition  of  its  af- 
fairs." ^ 

This  seems  to  be  generally  conceded,  but  it  certainly  can- 
not be  held  that  for  the  carelessness  and  negligence  of  other 

1  Bank  of  the  State  v.  Wheeler,  21  Ind.  90. 


138  The  Cashier.  [cii.  x. 

employees,  having  access  to  the  funds  and  other  property  of 
tlic  bank  that  the  cashier  should  be  liable  when  loss  in  snch 
cases  occur,  unless  by  the  negligence  and  carlessness  of  the 
cashier,  he  having  knowledge  of  the  fact  that  the  funds  or 
valuables  were  being  handled  by  the  employees  when  it  was 
his  duty  alone  to  handle  and  safely  care  for  the  same. 

Tlie  duties  and  responsibilities  of  the  cashier  are  many. 
His  position  is  one  of  great  importance,  and  he  should  be  a 
man  of  irreproachable  character,  a  good  judge  of  human  na- 
ture, alert  and  circumspect.  He  should  have  a  good  education, 
and  be  satisfied  to  make  a  quiet  and  genteel  living  by  means 
of  study,  work,  and  close  aplication  to  business,  willing  to 
forego  chances  for  the  accumulation  of  large  fortunes,  or  of 
fame.  He  should  be  content  with  steady  employment  which, 
if  his  adaptability  and  habits  justify,  will  insure  him.  He 
should,  in  conclusion,  carefully  avoid  everything  which  might 
in  the  public  eye  compromise  himself,  and  through  him  the 
bank  which  employs  him,  and  unless  in  the  beginning  he  can 
master  himself  for  these  duties,  and  responsibilities  he  should 
avoid  banking. 

§  127.  Cashier  executive  officer  of  the  bank. 

The  Supreme  Court  of  the  United  States,  in  the  case  of  The 
Merchants'  Bank  v.  State  Bank,  10  Wall.  60-1,  in  defining  and 
discussing  the  powers  and  duties  of  the  cashier  of  a  bank,  says: 
"  The  cashier  is  the  executive  ofiicer,  through  whom  the  whole 
financial  operations  of  the  bank  are  conducted.  He  receives 
and  pays  out  its  moneys,  collects  and  pays  its  debts  and  re- 
ceives and  transfers  its  commercial  securities.  Tellers  and 
other  subordinate  ofiicers  may  be  appointed  but  they  are  luider 
his  direction  and  are,  as  it  were,  the  arms  by  which  designated 
portions  of  his  various  functions  are  discharged.  A  teller  may 
be  clothed  with  the  power  to  certify  checks,  but  this,  in  it- 
self, "would  not  affect  the  right  of  the  cashier  to  do  the  same 
thing.  The  directors  may  limit  his  authority  as  they  deem 
proper,  but  this  would  not  affect  those  to  whom  tlie  limita- 
tion was  unknown."  " 

2  Commercial  Bank  of   Lake  Erie  Mechanics'    Bank     r.     Butchers'    & 

r.  Norton  et  o/.,  1  Hill  (N.  Y.)   501:  Drovers'   Bank,   14   New   York   G24. 

Bank  of  Vergennes  r.  Warren,  7  Hill  North  River  Bank  r.  Aymar,  ^  Hill 

01;  Beers  r.  The  Phoenix  Glass  Com-  202.  208;    Barnes   r.  Ontario   Bank, 

pany,  14  Barbour,  358;  Farmers'  &  19    New    York    152. 


en.  X.]  Banking.  139 

Tlie  office  of  the  cashier  is  strictly  executive.  In  the  absence 
of  expressed  authority  from  the  board  of  directors,  he  can 
only  perform  the  daily  routine  business  of  the  bank.  To 
state  his  position  correctly  he  is  the  executive  agent  of  the 
board  of  directors.  The  leading  authorities  hold  that  beyond 
the  ordinary  business  of  the  bank  his  acts  must  be  authorized, 
and  directed  by  the  board  of  directors. 

In  the  case  of  the  United  States  v.  City  Bank  of  Columbus, 
21  Howard,  356,  the  Supreme  Court  of  the  United  States  held: 
that  where  the  cashier  of  a  bank  wrote  to  the  Secretary  of  the 
Treasury  saying,  '^  that  the  bearer  of  the  letter  was  authorized 
to  contract  for  the  transfer  of  money  from  Xew  York  to  Xew 
Orleans,  such  a  transaction  was  not  within  the  scope  of  the 
powers  of  the  cashier  nor  authorized  by  the  directors,  therefore 
the  Bank  was  not  bound  to  reimburse  the  money  which  the 
Secretary  of  the  Treasury  advanced." 

In  this  case  it  was  shown  that  the  directors  nor  president  of 
the  bank  had  any  knowledge  of  the  transaction.  All  of'  the 
directors  of  the  bank  at  the  time  of  the  transaction  testified, 
that  the  cashier  had  not  been  authorized  by  the  board  or  by 
any  of  themselves  to  constitute  Miner,  who  was  the  bearer  of 
the  letter,  as  such  agent  of  the  bank.  The  directors  also  testi- 
fied that  they  had  no  knowledge  of  the  cashier's  letter,  and 
that  they  never  sanctioned  the  same. 

The  court,  in  giving  an  instruction  to  the  jury  in  this  case, 
gave  the  following  instruction:  "  That  if  they  should  find 
that  the  letter  written  by  Moody  (the  cashier)  was  his  own 
act,  and  had  been  given  without  the  knowledge  or  authority 
of  the  board  of  directors,  or  any  of  them  individually,  except 
Miner,  and  that  the  agency  of  Miner  was  not  constituted  by 
or  knowTi  to  the  board  of  directors,  or  any  of  them  except 
Miner,  but  was  the  act  of  the  cashier  alone ;  and  if  they  should 
find  that  Moody  had  no  power  as  cashier,  except  such  as  be- 
longed to  the  office  of  cashier  generally,  or  such  as  was  given 
by  the  charter  or  by  the  by-law  or  other  law  or  usage  of  the 
said  bank,  that  the  defendant  was  not  concluded  by  that  letter, 
and  is  not  bound  by  the  contract  made  by  Miner,  without  some 
subsequent  ratification  of  the  same,  though  the  Secretary  had, 
in  contracting  with  Miner,  relied  upon  it  as  the  act  of  the 
bank." 


140  The  Cashier.  [cii.  x. 

The  court,  in  discussing  this  instruction  to  the  jurv,  sajs : 
"  It  is  also  in  coincidence  with  the  theories  generally  enter- 
tained of  the  poAvers  and  duties  of  the  cashiers  of  banks,  by 
those  most  familiar  with  the  management  and  business  of  banks 
and  perfectly  so  with  such  as  has  been  expressed  by  this  court 
in  previous  reported  cases." 

In  the  absence  of  expressed  powers  granted  by  the  charter  of 
the  bank,  or  authority  given  by  the  by-laws  of  the  corporation, 
or  resolution  duly  passed  by  the  board  of  directors,  the  cashier 
has  no  power  to  perform  any  act  other  than  those  which  are 
termed  inherent  powers  which  belong  to  his  office. 

§  128.  Cashier's  inherent  powers. 

The  cashier  or  office  of  cashier,  by  long  usage  and  custom  with 
banks,  has  acquired  certain  inherent  powers  which  the  courts 
have  judicially  declared  to  be  powers  inherent  in  the  office,  and 
which  have  become  settled  as  recognized  law.  They  are  such 
powers  as  the  cashier  may  exercise  without  any  special  direc- 
tion, vote,  or  authority  from  the  board  of  directors.  They  are 
such  as  go  with  the  office,  inherent  m  the  office. 

As  previously  stated,  his  powers  may  be  enlarged  by  the 
language  of  the  charter  or  by  by-laws  duly  adopted  by  the 
corporation,  or  by  resolution  of  the  board  of  directors.  In  the 
absence  of  such  special  authority,  the  powers  denominated  in- 
herent powers  are  those  Avhich  belong  to  him  by  virtue  of  his 
appointment  to  the  office. 

§  129.  Cashier  has  inherent  power  to  certify  checks. 

The  power  to  certify  checks  has  by  universal  usage  become 
recognized  as  an  inherent  power,  belonging  to  the  office  of 
cashier.  To  perform  this  act  the  cashier  is  not  required  to 
obtain  special  directions  or  authority  from  the  board  of  di- 
rectors. 

lie  mav  certify  checks  when  requested  so  to  do  by  a  customer 
of  the  l^aiik,  if  the  bank  has  sufficient  funds  of  the  drawer 
against  which  the  check  is  to  be  charged ;  and  it  may  be  said 
that  it  is  a  part  of  his  duty  to  do  so;  but  he  has  no  authority 
to  certify  a  check  drawn  upon  the  bank,  unless  the  drawer 
has  the  full  amount  of  funds  deposited  in  the  bank  to  pay  the 
same  at  the  time  the  check  is  draAATi. 

The  Xational  Banking  Act,  §  5208,  Rev.  Stat.,  U.  R.,  pro- 


cii.  X.]  Banking.  141 

vides  that:  "It  shall  be  unlawful  for  any  officer,  clerk  or 
agent  of  any  national  banking  association  to  certify  any  check 
drawn  upon  the  association  unless  the  person  or  company 
drawing  the  check  has  on  deposit  with  the  association,  at  the 
time  such  check  is  certified,  an  amount  of  money  equal  to  the 
amount  specified  in  such  check.  Any  check  so  certified  by 
duly  authorized  officers  shall  be  a  good  and  valid  obligation 
against  the  association ;  but  the  act  of  any  officer,  clerk  or 
agent  of  any  association,  in  violation  of  this  section,  shall  sub- 
ject the  bank  to  the  liabilities  and  proceedings  on  the  .part 
of  the  Comptroller  as  provided  for  in  section  fifty-two  hundred 
and  thirty-four." 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
Thompson  v.  St.  jSTicholas  jSTational  Bank,  146  U.  S.  240,  in 
discussing  this  section,  while  holding  that  it  is  a  violation  of 
the  law  for  an  officer  of  a  national  bank  to  certify  a  check 
unless  the  drawer  of  the  same  has  an  equivalent  amount  of 
money  on  deposit  at  the  time,  holds,  that  it  does  not  preclude 
the  bank  from  enforcing  its  claim  out  of  collaterals  pledged  to 
secure  the  obligations  of  the  drawer  of  the  check. 

The  only  penalty  incurred  by  the  bank  through  the  acts  of 
its  officer  for  a  violation  of  the  provisions  of  this  section,  may 
be  a  forfeiture  of  the  bank's  charter ;  but  where  the  law  pro- 
hibits certain  acts  by  banks  or  their  officers,  their  validity  can 
be  questioned  only  by  the  United  States,  and  not  by  private 
persons. 

The  penalty  for  false  certification  of  checks  by  any  officer, 
clerk,  or  agent  of  any  national  banking  association,  is  pro- 
vided for  and  fixed  by  section  13  of  the  act  of  July  12,  1882 ; 
which  provides:  "  That  any  officer,  clerk  or  agent  of  any  na- 
tional banking  association  who  shall  willfully  violate  the  pro- 
visions of  section  fifty-two  hundred  and  eight  of  the  Revised 
Statutes  of  the  United  States,  or  who  shall  resort  to  any  device, 
or  receive  any  "fictitious  obligation,  direct  or  collateral,  in 
order  to  evade  the  provisions  thereof,  or  who  shall  certify 
checks  before  the  amount  thereof  shall  have  been  regularly 
entered  to  the  credit  of  the  dealer,  upon  the  books  of  the 
banking  association,  shall  be  deemed  guilty  of  a  misdemeanor 
and  shall,  on  conviction  thereof  in  any  Circuit  or  District  Court 
of  the  United  States,  be  fined  not  more  than  five  thousand 


142  TiiE  Casiiiek.  [cii.  x. 

dollars,  or  shall  be  imprisoned  not  more  than  five  years,  or 
both,  in  the  discretion  of  the  court." 

To  constitute  a  criminal  certification  of  a  check  by  the 
cashier,  it  must  be  a  -willful  act.  The  Supreme  Court  of  the 
United  States  in  the  case  of  United  States  v.  Britton,  107  U.  S. 
655,  says:  "  That  the  willful  misapplication  of  the  moneys  and 
funds  of  the  banking  association  *  *  *  means  something 
different  from  the  acts  of  official  maladministration  referred  to 
in  section  5239  (Eev.  Stat.,  U.  S.),  and  it  must  be  a  willful 
misapplication  for  the  use  of  the  party  charged  or  of  some 
person  or  company,  other  than  the  association,  with  the  intent  to 
injure  and  defraud  the  association  or  some  other  body  cor- 
porate or  some  natural  person." 

To  certify  a  check,  the  cashier  writes  the  words  "  certified 
good,"  or  the  word  "  good,"  across  the  face  of  the  check, 
usually  dating  the  time  of  the  transaction  and  signs  his  name 
officially  to  the  certification.  A  stamp  may  be  used,  and  in 
such  a  case  the  date  and  signature  only  are  to  be  written.  After 
the  check  is  certified  and  delivered  to  the  owner,  the  drawer's 
account  is  immediately  charged,  and  the  bank  charges  itself 
with  the  amount  of  the  check  by  placing  it  to  the  fund  called 
the  "  Certified  Check  x\ccount."^ 

The  holder  of  the  certified  check  may  at  any  time  present 
his  check  to  the  bank  for  payment,  and  the  bank  being  a 
debtor  to  the  holder  of  said  check  for  the  amount  named 
therein,  must  pay  the  same  on  demand.  While  the  bank's  posi- 
tion is  one  of  debtor,  it  may  elect  to  notify  the  holder  of  the 
check,  if  known,  to  present  the  same  for  payment  at  any  time. 

The  holder  of  the  cheek  is  not  a  depositor  of  the  bank,  but  is 
in  the  position  or  the  relationship  of  a  creditor,  holding  the 
obligation  or  certified  clieck  designating  a  certain  sum  of  money 
due,  and  payable  on  presentation  of  the  same. 

The  holder  of  the  certified  check  cannot  issue  a  check  on  the 
bank  and  draw  against  his  credit,  as  he  has  no  account  with 
the  bank,  but  simply  holds  a  negotiable  instniment  with  the 
bank's  certified  statement  that  on  presentation  by  the  legal 
holder  of  the  same,  it  will  ]iay  it  upon  demand. 

A  certified  check  is  in  the  nature  of  a  certificate  of  deposit, 
which  represents  the  fact  that  the  bank  holds  for  the  legal 
owner  of  the  same,  the  amount  represented  by  the  check ;  and 


cii.  X.]  Banking.  143 

like  a  certificate  of  deposit,  it  must  be  presented  when  payment 
is  demanded;  and,  like  a  certificate  of  deposit,  the  bank  can 
refuse  to  pay  any  portion  of  it.  But  must  pay  in  full  on  de- 
mand. The  bank  should  not  make  a  partial  payment  of  the 
check  and  enter  a  credit  upon  the  pame ;  but  if  pre- 
sented and  a  portion  of  the  check  is  paid,  the  bank  should 
cancel  the  original  check  and  give  credit  to  the  owner  for  the 
difference,  or  issue  in  lieu  of  said  credit  a  certificate  of  deposit, 
for  the  amount  remaining  due  and  unpaid. 

It  has  been  held  that  a  check  may  be  certified  verbally ; 
thaf  is  to  say,  where  a  check  is  presented  by  the  drawer  thereof 
or  by  the  payee  to  the  bank,  and  an  officer  of  the  same,  duly 
authorized  to  certify  checks,  is  handed  the  check  and  asked  the 
question:  "Is  this  check  good?"  and  he  replies  in  answer 
thereto,  after  examination  of  the  same,  that  "  it  is  good  "  or, 
"  it  is  all  right,"  then  such  language  is  equivalent  to  the  cer- 
tification of  the  check.  It  is  held,  however,  in  the  case  of 
Espy  V.  Bank  of  Cincinnati,  18  Wall.  604,  that  where  a  party 
to  whom  such  a  check  is  offered  sends  it  to  the  bank  on  which 
it  is  drawn,  for  information,  the  law  presumes  that  the  bank 
has  knowledge  of  the  drawer's  signakire,  and  of  the  state  of 
his  account,  and  it  is  responsible  for  what  may  be  replied  on 
these  points. 

That  unless  there  is  something  in  the  terms  in  which  in- 
formation is  asked,  that  points  the  attention  of  the  bank  officer 
beyond  these  two  matters,  his  response  that  the  check  is  good 
will  be  limited  to  them,  and  will  not  ^extend  to  the  genuine- 
ness, of  the  filling  in  of  the  check  as  to  the  payee  or  amoiint. 

The  court  further  holds  that  a  verbal  reply  that  a  check  is 
"  good  "  given  for  the  information  of  the  party  about  to  re- 
ceive it,  extends  only  to  matters  of  which  the  bank  liad  knovrl- 
edge.  or  is  presumed  to  have  by  the  law,  unless  he  is  told  that 
more  extended  information  is  expected  or  asked  for  as  to  the 
validity  of  the  check. 

In  so  far  as  the  cashier's  power  is  concerned,  it  is  conceded 
that  by  universal  custom  and  usage  among  banks,  he  has  the 
inherent  power  to  certify  checks.  This  privilege  or  power, 
however,  is  not  exclusive  to  tlie  office.  The  president  of  the 
bank  and  vice-president  also,  are  inherentlv  clothed  witli  the 
power;  and  may  do  so  without  having  special  authority  granted 


144  The  Cashier.  [ch.  x. 

to  them  by  the  board  of  directors.  It  is  also  claimed  that  the 
assistant  cashier  and  the  paving  teller,  by  usage  and  custom, 
have  the  inherent  power  and  may  certify  checks  ;  but  the  sound- 
ness of  this  law  has  been  questioned.  It  is  held  that  the  as- 
sistant cashier,  or  teller,  cannot  without  authority  first  obtained 
from  the  board  of  directors,  perform  this  function,  but  if  au- 
thorized to  do  so,  they  may  make  such  certificates. 

The  courts  of  the  various  states  have  discussed  this  question 
of  inherent  power  in  ofiicers  of  banks,-  to  perform  certain  func- 
tions, and  have  attempted  to  give  logical  reasons  why  a  certain 
cfficer  is  clothed  with  incidental  or  inherent  powers,  and  some 
of  them  have  declared  the  law  to  be  that  the  cashier  is  alone 
delegated  inherently  to  certify  checks.  One  court  undertakes 
to  show  that  the  jDOwer  is  only  inherent  in  the  teller.  !Many 
of  these  decisions  are  written  without  any  knowledge  of  the 
business  of  banking,  or  the  division  of  duties  which  necessarily 
and  naturally  belong  to  the  various  departments  and  officers. 

To  hold  that  the  cashier  alone  is  clothed  with  the  power  to 
certify  checks,  is  establishing  a  law,  which  by  usage  and  custom, 
is  accepted  everwhere.  While  it  may  be  conceded  that  such 
a  custom  and  usage  is  inherently  established,  as  a  part  of  the 
duty  of  the  cashier,  it  does  not  necessarily  follow  that  no  other 
officer  of  the  bank  is  without  this  inherent  power. 

One  court  holds  that  the  teller  cannot  certify  a  check  because 
he  is  not  authorized  to  "  pledge  the  bank's  credit."  This  state- 
ment and  language  is  sufficient  to  demonstrate  the  fact,  that 
tlie  learned  jurist  is  not  a  banker.  The  bank's  credit  is  not 
in  any  way  affected  bv  the  certification  of  the  check.  The 
money  to  meet  the  check's  payment  before  certification  must 
be  placed  in  the  bank,  and  all  the  bank  does,  or  binds  itself  to 
do,  through  its  officer,  is  to  pay  the  check  when  it  is  presented. 
It  enters  into  no  extraordinary  transaction.  In  the  simplicity 
of  the  act  it  is  accepting  a  certain  sum  of  money  from  a  cus- 
tomer, and  certifying  that  the  amount  for  which  the  check  is 
draAATi  is  in  the  bank,  and  that  it  will  be  paid  to  the  bona  fide 
holder  of  the  same  when  it  is  presented. 

Again,  it  is  the  depositing  of  a  certain  sum  of  money  with 
the  bank,  fwliich  a  teller  ordinarily  lias  the  right  to  receive), 
and  when  so  received  the  bank  by  agreement,  namely,  the  cer- 
tification of  a  check  dra\vn  against  the  amount  by  the  depositor, 


cii.  X.]  Bai^tking.  145 

agrees  that  it  will,  on  presentation  of  the  check,  pay  the  same. 
There  is  no  "  pledging  of  the  bank's  credit  "  in  sncli  a  trans- 
action, and,  it  may  be  argued,  that  if  the  teller  has  the  inherent 
right  to  receive  the  money  of  customers  for  deposit,  inherently 
he  should  have  the  power  to  certify  the  depositor's  check,  ■which 
is  in  effect  the  payment  of  the  check  in  advance,  the  drawer's 
account  having  been  charged  with  the  amount  at  the  time. 

We  find  the  Xew  York  courts  sustaining  the  position  that  the 
authority  to  certify  checks  is  inherent  in  the  cashier,  and  that 
such  authority  is  derived  by  usage.  If  a  bank  establishes  a 
custom  with  its  dealers  and  those  doing  business  with  it,  which 
is  reasonable,  and  the  act  performed  under  such  a  custom  does 
not  work  an  injustice  to  the  parties  dealing  with  it,  and  where 
such  custom  is  universal  with  the  banks  in  that  particular  lo- 
cality, the  courts  will  sanction  the  custom  and  make  it  the 
law.  Therefore,  if  it  is  the  custom  of  the  teller  to  certify 
checks  of  the  bank,  it  is  reasonable  to  assume  that  the  power  is 
inherent  in  his  office.  The  nature  of  the  business,  particularly 
delegated  and  performed  by  him,  of  receiving  money  and  pay- 
ing checks,  comes  within  that  class  of  duty  or  authority,  which 
the  teller  assums  and  transacts  daily  and  hourly,  and  the  certi- 
fying of  checks  is  nothing  more  than  the  receiving  of  money 
and  paying  the  same  out  again  upon  a  written  order  or  check. 

In  the  case  of  Merchants'  Bank  v.  State  Bank,  10  Wall.  601, 
v;hich  is  cited  as  a  leading  and  important  case  upon  the  question 
of  inherent  power,  in  the  cashier  to  certify  checks;  the  court 
there  holds  that  if  the  cashier  has  power  to  receive  the  moneys, 
the  authority  to  receive  implies  the  power  to  give  certificates 
of  deposit  and  other  proper  vouchers.  Upon  the  same  reason- 
ing, and  upon  the  same  ground,  the  teller  who  receives  deposits 
has  implied  authority  to  perform  the  act  of  certifying  a  check, 
as  it  simply  amounts  to  the  paATiient  of  a  deposit. 

The  by-laws  of  the  bank  may  deprive  the  cashier  or  the  teller 
of  this  particular  power,  and  place  the  same  exclusively  in 
some  other  officer  of  the  bank,  but  in  the  absence  of  such  a 
delegation  of  power  or  restriction  of  power  in  the  by-laws,  the 
cashier  and  paying  teller,  by  the  very  nature  of  their  duties, 
should  have  the  inherent  power  to  certify  checks. 

In  the  absence  of  a  limitation,  or  prohibition,  of  a  power 
which  l»y  the  very  nature  of  the  business  is  required  to  be  per- 
10 


146  The  Cashier.  [ch.  x. 

formed  by  an  officer  of  the  bank,  it  becomes  his  duty  to  per- 
form the  same,  and  the  act,  when  performed,  may  be  said  to 
be  an  inherent  power  in  the  office. 

The  law  is  settled  that  where  the  directors  in  a  ha)il'  allow 
an  officer  to  certify  checks,  the  hank  cannot  repudiate  his  acts; 
and  where  no  knowledge  of  restrictions  or  limitations  arc 
known  to  the  general  public,  the  act  is  valid  between  the  hank 
and  the  party  dealing  with  it. 

The  cashier  or  other  officer  of  a  bank  who,  without  authority, 
certifies  a  check  "  good,"  when  the  drawer  has  not  unincum- 
bered funds  deposited  in  the  bank  to  meet  the  check,  is  a  wrong- 
ful act,  and  a  person  having  knowledge  of  such  a  fact  is  pre- 
sumed to  know  that  such  an  act  was  unauthorized,  and  there- 
fore void;  and  such  knowledge  of  the  wrongful  act  will  not 
permit  the  party  to  hold  the  bank  liable;  but  if  the  check  is 
negotiable,  and  passes  into  the  hands  of  an  innocent  holder 
without  notice,  the  bank  cannot  repudiate  the  check. 

In  the  case  of  Morse  v.  Massachusetts  Xational  Bank,  1 
Holmes,  209,  the  court  says:  "  The  certificate  of  a  cashier  of  a 
bank  that  a  check  is  ^'  good  "  is  a  representation  of  a  present 
existing  fact  within  his  knowledge  as  cashier,  and  if  that  cer- 
tificate be  made  by  him  in  the  course  of  his  ordinary  business 
as  cashier,  it  will  bind  the  bank  in  favor  of  innocent  third  per- 
sons, upon  the  ])rincit)le  of  estoppel  in  pais,  even  if  the  certificate 
is  not  true,  and  the  drawer  of  the  ch&ck  has  no  funds  on  deposit 
in  the  bank." 

§  130.  Cashier  cannot  certify  his  own  check. 

The  certification  of  his  own  check  is  utterly  void,  though  he 
has  money  to  his  credit  in  the  bank  covering  the  amount  of  the 
check.  The  fact  that  he  has  deposited,  or  has  on  deposit,  the 
amount  of  the  check  does  not  authorize  or  give  him  the  power 
to  certify  his  own  check. 

Where  an  officer  of  a  bank  is  authorized  to  certify  checks, 
and  certifies  his  own  check,  which  passes  into  the  lumds  of  a 
bona  fide  holder  for  value,  the  bank,  though  not  liable,  should 
be  held  for  it.  It  has  been  held  that  where  the  president  of  a 
bank  had  drawn  his  check,  and  certified  the  same,  that  this  fact 
alone  was  not  sufficient  to  charge  the  holder  with  notice,  and 
tliere  being  no  proof  of  notice  that  the  drawer  was  the  person 


CH.  X.]  E^VXKIXG.  147 

who  certified  the  check,  the  bank  was  held  liable ;  but  it  is  also 
held  that  if  the  names  are  identical  that  fact  alone  is  sufficient 
to  put  the  holder  at  least  upon  inquiry,  and  the  bank  is  not 
liable.  The  fact  that  the  names  are  identical  might  occur,  and 
a  more  reasonable  holding  would  be,  that  proof  should  be  fur- 
nished, showing  that  the  bona  fide  holder  for  value,  had  notice 
that  the  drawer  and  the  officer  certifying  the  same,  were  one 
and  the  same  person. 

In  the  case  of  The  Clark  Xational  Bank  v.  The  Bank  of 
Albion,  impleaded,  etc.,  52  Barb.  592,  it  is  held  that  a  holder  of 
a  check  certified  to  by  the  cashier  cannot  recover  from  the 
bank  unless  it  appears  that  he  became  the  owner  and  holder  of 
the  check  in  good  faith  for  a  full  and  fair  consideration  and 
without  notice  of  the  cashier's  want  of  power  to  make  the  cer- 
tification. 

AVhere  the  public  and  those  dealing  "^^nth  the  bank,  have 
notice  that  a  cashier  by  the  very  nature  of  his  office  and  busi- 
ness, is  authorized  to  certify  checks;  the  want  or  lack  of  power 
to  certify  his  own  check  is  requiring  of  those  dealing  with  him 
extraordinary  (or  legal)  knowledge  of  all  his  expressed  and 
implied  power. 

It  is  requiring  of  the  public  and  persons  dealing  with  the 
cashier  a  degree  of  information  as  to  his  powers,  which  the  law 
does  not  impose  upon  persons  generally  who  deal  with  general 
agents.  There  are  but  few  persons  who  deal  with  banks  that 
have  notice  that  the  cashier  cannot  certify  his  own  checks ;  and 
if  they  are  not  possessed  with  such  notice,  the  holder  of  a 
hona  fide  check  should  be  in  a  position  to  hold  the  bank. 

The  law,  as  laid  down  by  the  courts,  however,  and  the  rule 
adopted,  is  stated  as  follows :  "  Where  the  face  of  the  check 
shows  the  officer's  attempt  to  use  liis  official  character  for  his 
private  benefit,  every  one  to  wlioni  it  comes  is  put  upon  in- 
quiry; and  when  the  certificate  is  false,  no  one  can  recover 
against  the  bank  as  a  bona  fide  holder/' 

§  131.  Power  to  draw  checks. 

The  cashier  has  the  inherent  power  to  draw  drafts  or  checks, 
when  the  business  of  the  bank  requires  it  upon  the  funcjs  of  the 
bank  Avhen  deposited  elsewhere.  It  is  not  necessary  for  the 
board  of  directors  to  confer   such  a  power  upon  him;   it  is 


148  The  Casiiiee.  [cii.  x. 

inherent  in  the  office.  In  the  excution  of  such  checks  he  should 
desig^nate  himself  as  cashier  of  the  bank  which  he  represents. 

This  is  very  important  where  a  cashier  by  a  check  or  draft 
directs  that  the  funds  of  his  bank  be  transferred  or  paid  to  a 
certain  person,  the  check  or  instrument  should  be  so  drawn, 
shovvang  on  its  face  all  the  necessary  elements  of  perfectness; 
and  have  all  the  marks  of  official  authority  upon  it.  A  failure 
to  perform  his  duty  in  this  particular  may  cause  loss  to  a  cus- 
tomer of  the  bank;  which  negligence  upon  his  part  may  also 
make  him  liable  personally. 

If  the  instrument  is  imperfect,  for  example,  if  the  cashier 
fails  to  sign  it  as  cashier,  designating  the  bank  which  he  repre- 
sents, it  may  be  refused  payment.  The  bank  or  cashier  upon 
whom  it  is  drawn  should  refuse  to  honor  it  if  presented  and 
signed  in  an  individual  capacity.  The  payee  bank  may  honor 
it,  and  be  safe  in  doing  so,  but  if  it  is  shown  that  the  cashier 
was  not  acting  in  his  official  capacity  when  the  check  was  drawn, 
the  bank  paying  it  would  have  to  sustain  the  loss.  Parole 
evidence  is  admissible  to  show  the  fact,  namely,  that  the  cashier 
was  acting  in  his  official  capacity;  and  that  it  Avas  an  omission 
upon  his  part  to  sign  his  name  as  cashier. 

In  the  case  of  Mechanics'  Bank  v.  Bank  of  Columbia,  5 
AVheat.  326,  the  question  presented  to  the  court  in  this  case 
arose  upon  an  instrument  or  check  issued  by  the  cashier  of  the 
Mechanics'  Bank  of  Alexandria,  which  check  was  signed  by  the 
cashier  in  his  individual  capacity.  The  form  of  the  check  is 
given  in  the  reported  case  as  follows : 


a 
a 

No.  18.                                             "  Meeliauios'  Bank  of  Alexandria. 

< 

June  25th,  1817. 

■H 

o 

Cashier  of  tbe  Bank  of  Columbia, 

a 

Pay  to  the  order  of  P.  H.  Minor,  Esq..  Ten  thousand  Dollars. 

o 

H 

a 

.a 

o 
c 

<5 

$10,000 

This  is  one  of  the  early  cases.  It  presented  the  following 
question:  Was  the  act  of  the  cashier  official,  his  name  appear- 
ing and  being  signed  in  an  individual  capacity. 


cii.  X.]  Banking.  149 

The  court  declared  in  delivering  the  opinion  that  parole  evi- 
dence was  admissible  when  the  instrnment  npon  its  face  raises 
a  doubt  as  to  the  capacity  in  which  the  officer  w^as  acting. 

The  justice,  in  delivering  his  opinion  of  the  court,  says: 

"  The  question  is  whether  a  certain  act  done  by  the  cashier 
of  a  bank  was  done  in  his  official  or  individual  capacity?  Had 
the  draft,  signed  by  Paton,  borne  no  jnarks  of  an  official  char- 
acter on  the  face  of  it,  the  case  would  have  presented  more  diffi- 
culties. But  if  marks  of  an  official  character,  not  only  exist 
on  the  face,  but  predominate,  the  case  is  really  a  very  familiar 
one.  Evidence  to  fix  its  true  character  becomes  indispensible. 
*  *  *  The  only  ground  on  which  it  can  be  contended  that 
this  check  was  a  private  check  is,  that  it  had  not  below  the  name 
the  letters  Cas.  or  Ca.  But  the  fallacy  of  the  proposition  v/ill 
at  once  appear  from  the  consideration  that  the  consequence 
would  be  that  all  Baton's  checks  must  have  been  adjudged 
private.  Bor  no  definite  meaning  could  be  attached  to  the 
addition  of  those  letters  without  the  aid  of  parole  testimony. 
But  the  fact  that  this  appeared  on  its  face  to  be  a  private  check 
is  by  no  means  to  be  conceded.  On  the  contrary  the  appear- 
ance of  the  corporate  name  of  the  institution  on  the  face  of  the 
paper  at  once  leads  to  the  belief  that  it  is  a  corporate  and  not 
an  individual  transaction:  to  which  must  be  added  the  circum- 
stances that  the  cashier  is  the  drawer  and  the  teller  the  payee ; 
and  the  form  of  ordinary  checks  deviated  from  by  the  substi- 
tution of  to  order,  for  to  bearer.  The  evidence,  therefore,  on 
the  face  of  the  bill  predominates  in  favor  of  its  being  a  bank 
transaction." 

The  cashier  acts  for  the  bank  in  the  capacity  of  a  general 
agent,  and  if  it  is  shown  that  his  acts  are  done  in  the  exercise 
and  within  the  limit  of  the  power  delegated,  such  facts  are 
inquirable  into  by  a  court  and  jury. 

Any  form  of  check  may  l)c  used  l)y  the  cashier  for  the  pur; 
pose  of  transferring  the  funds  of  the  bank,  and  the  drawee  may 
honor  it,  but  if  it  fails  to  show  any  marks  or  words  to  indicate 
the  corporate  name  of  the  institution,  under  the  holding  of  the 
court  in  the  case  above  referred  to,  parole  evidence  would  be 
inadmissible  to  show  its  status,  therefore,  it  should  be  signed 
by  the  cashier,  not  in  his  individual  capacity,  but  in  his  official 
capacity. 


150 


The  Cashier. 


[CH.  X. 


"While  the  form  may  not,  as  stated,  be  essential,  when  prop- 
erly drawn  it  removes  all  suspicion  and  must  be  honored 
immediately  on  presentation, 

A  cashier  may,  by  letter,  addressed  to  a  corresponding  bank, 
direct  that  the  bank's  account  be  charged  with  a  certain  sum, 
or  payment  be  made  to  a  certain  person,  or  that  a  remittance  be 
made  by  the  bank  to  a  certain  person  or  bank ;  such  written 
instructions  are  frequently  used  and  operate  as  a  check  upon 
the  bank's  account ;  but  a  cashier's  check,  which  is  drawn 
and  delivered  to  a  person  and  which  becomes  transferable, 
should  bear  on  its  face  all  the  essential  elements  marking  it  as 
an  instrument  free  from  suspicion  and  doubt  as  to  its  genuine- 
ness. The  form,  therefore,  and  the  essential  requisites,  may 
be  important  to  the  holder  of  the  check,  but  if  lacking  any  of 
these  essentials  and  it  can  be  shown  that  the  cashier  was  acting 
in  his  official  capacity,  the  bank  will  be  held  responsible  for  the 
same. 

The  cashier's  check,  when  drawn  upon  his  own  bank,  is  an 
acknowledgment  of  the  fixed  indebtedness  due  by  the  bank; 
and,  unlike  other  checks,  in  this  particular,  the  holder  is  not 
required  to  present  the  same  for  payment  within  any  specified 
time. 

It  being  an  acknowledged  indebtedness  of  the  bank,  it  may 
be  presented  for  payment  at  any  time  before  being  barred  by 
the  Statute  of  Limitation. 


g  132.  Power  to  receive  offers  for  the  purchase  of  bank 
securities. 

As  a  general  agent  of  the  bank  the  cashier  has  the  authority 
to  receive  offers  of  purchase  for  the  property  or  securities 
belonging  to  the  bank;  but  he  is  not  authorized  to  dispose  of, 
or  sell  such  securities  ^vithout  an  order  from  the  board  of 
directors. 

The  Supreme  Court  of  the  United  States,  in  the  case  of  First 
Xational  "Bank  of  Xenia,  Ohio,  Plaintiff  in  Error,  v.  Daniel  M, 
Stewart  and  ]\Iartha  A.  McMillan,  Admrs.  of  the  Estate  of 
Daniel  McMillan,  Deceased,  114  F.  S.  224,  holds  that  it  is 
Tsnithin  the  scope  of  the  general  authority  of  a  cashier  to  receive 
offers  for  the  securities  of  the  bank,  and  to  state  whether  or 
not  the  bank  owns  socuritios  which  a  cu^^tomer  wanted  to  buy. 


en.  X.]  Banking.  151 

His  statement  to  a  person  who  was  in  treaty  to  purchase  that 
the  bank  was  not  the  owner  of  a  certain  security  in  his  manual 
possession  as  cashier,  was  clearly  within  the  line  of  his  duty 
and  was  binding  on  the  bank. 

§  133.  Cashier  has  inherent  power  to  deal  in  bills  of  exchange. 

A  bill  of  exchange  is  "A  written  order  from  one  person  to 
another,  directing  the  person  to  whom  it  is  addressed  to  pay 
to  a  third  person  a  certain  sum  of  money  therein  named."  ^ 

"A  foreign  bill  of  exchange  is  one  which  the  drawer  and 
drawee  are  residents  of  countries  foreign  to  each  other." 

In  this  respect  the  States  of  the  United  States  are  held 
foreign  to  each  other.* 

An  inland  bill  of  exchange  is  one  of  which  the  drawer  and 
drawee  are  residents  of  the  same  State  or  country.^ 

A  cashier  has  the  inherent  power  to  buy  and  sell  foreign  or 
inland  bills  of  exchange. 

The  Xational  Banking  Act,  by  provisions  of  section  5197, 
Revised  Statutes  of  the  United  States,  authorizes  national 
banks  to  purchase,  discount  or  sell  a  bona  fide  bill  of  exchange. 

It  is  not  a  violation  of  the  National  Banking  Act  for  a 
cashier  to  discount  bills  of  exchange  dra\\Ti  in  good  faith 
against  actually  existing  values,  though  the  amount  exceeds 
the  amount,  which  by  the  law  may  be  loaned  to  any  one  per- 
son.     It  is  not  construed  as  money  borrowed. 

Dealing  in  bills  of  exchange  is  a  part  of  the  business  of 
banking  and  it  becomes  the  duty  of  the  cashier  in  the  purchase 
and  sale  of  the  same  to  endorse  them  over  to  the  buyer. *^ 

If  the  bank's  charter  being  a  savings  bank,  forbids  this 
branch  of  the  business,  the  cashier  has  no  authority  to  buy  and 
sell  bills  of  exchange,  but  should  he  do  so,  in  violation  of  the 
charter,  or  the  direction  of  the  board  of  directors,  the  pre- 
sumption of  his  authority,  without  notice  to  the  contrary  to 
a  customer,  will  bind  the  bank. 

The  cashier  of  a  national  bank,   being  authorized  to  buy 

SWood  I'yles   on  Bills,  1.  5  Ragsdale  V.   Franklin,   25   Miss. 

4  Dickens*  r.  Beal,  10  Peters  572;  143. 

Phoenix    Bk.    r.    Hussey,    12    Pick.  6  Fleckner  r.  United  States  Bank, 

483;  Green  v.  Jackson,  "15  Me.  136:  8  Wheat.  338;   Bank  of  New  Haven 

Armstrong  v.  American  Ex.  Bk.,  133  r.  Perkins,  29  N.  Y.  554. 
U.  S.  433. 


152  The  Cashier.  [ch.  x. 

and  sell  bills  of  excliange,  a  national  bank  may  charge  the  rate 
of  interest  allowed  by  the  State,  or  a  rate  that  may  be  allowed 
to  State  banks  of  issue. 

§  134.  Cashier  has  charge  of  personal  property. 

The  cashier,  by  the  very  nature  of  his  office,  has  charge  of 
all  the  personal  property  of  every  nature  belonging  to  the 
bank;  and  is  held  to  a  strict  account  for  the  same. 

He  has  full  charge  of  the  cash.  Chief  Justice  Mitchell 
holds  that  he  should  be  able  to  g'ive  an  account  of  the  same  at 
any  time  when  called  upon  to  do  so. 

If  he  is  charged  with  the  responsibility  of  giving  an  account 
of  the  cash  of  the  bank  at  any  time,  inherently  he  is  endowed 
with  the  power  of  paying  all  the  la^\i:ul  demands  when  due 
and  presented  against  the  bank.  He  may  open  an  account 
with  a  customer  or  refuse  the  same.  Being  held  accountable 
for  the  cash,  he  may  open  an  account,  and  select  a  correspond- 
ent bank  and  deposit  with  such  bank  such  portion  of  the  funds 
or  cash,  as  in  his  judgment  is  prudent  and  for  the  best  inter- 
ests of  the  bank.  Having  authority  to  select  a  correspondent, 
and  establish  such  a  depositary  for  the  bank,  he  has  authority 
to  "withdraw  the  same  at  any  time. 

He  is  also  charged  with  the  care  and  safe  keeping  of  all 
the  notes,  bonds,  bills  and  other  securities  and  valuable  papers 
belonging  to  the  bank;  and  may,  when  the  necessity  arises, 
during  the  ordinary  course  of  business,  sell,  transfer  and  dis- 
pose of  the  same,  and,  it  vnll  be  presumed,  until  the  contrary- 
is  shown,  that  he  sold  the  same  on  behalf  of  the  bank  and  was 
authorized  to  do  so  by  the  directors,  or  that  they  ratified  his 
act."^ 

The  inherent  powers  of  his  position,  holding  him  responsible 
for  and,  placing  in  his  charge,  all  the  personal  property  of  the 
bank,  and  the  auxiliary  power,  when  the  necessity  arises  to 
surrender  and  transfer  notes,  fixes  a  very  gi*eat  responsibility 
^^pon  him  and  the  office. 

Having  charge  of  the  personal  property  of  the  bank,  a  per- 
son dealing  with  him  in  his  capacity  as  cashier,  may  assume 

7  Hawkins  v.  Fourth  National  Story  on  Agency,  §  114:  Jones  v. 
Bank.  40  N.  E.  957;  Wild  r.  Bank  Hawkins.  17  Ind.  550,  559;  Ryan 
of   Pasa   Maquoddy,   3   Mason   505;        r.  Dunlap,  17  III.  40. 


cii.  X.]  Baa-kixg.  153 

that  be  has  authority  to  dispose  of  the  property,  and  in  the 
ordinary  transactions  and  dealings  with  him,  such  person  is 
not  required  to  inquire  into  the  limitations  or  i^strictions 
placed  upon  him  or  his  authority. 

If,  however,  the  transactions  of  the  cashier  in  the  disposi- 
tion of  property  belonging  to  the  bank,  raises  a  doubt  as  to  his 
authority  to  do  and  perform  the  act;  it  would  be  the  duty  of 
the  person  dealing  with  him  to  investigate  and  inquire  into 
his  authority. 

In  the  case  of  Franklin  Bank  v.  Stewart,  37  Me.,  519,  the 
court  in  discussing  the  powers  and  duties  of  agents  and  refer- 
ring to  the  power  of  a  cashier,  says  that  :  "  When  a  bank 
presents  its  cashier  as  habitually  performing  certain  acts  or 
duties,  these  may  be  regarded  as  official  acts  or  duties,  and  for 
the  performance  of  them  he  may  be  considered  as  its  general 
agent."  ^ 

§  135.  Power  to  indorse  negotiable  paper. 

The  power  of  the  cashier  to  indorse  negotiable  paper  of  the 
bank  is  inherent  in  the  office;  and  it  becomes  his  duty,  when 
so  required,  to  make  the  indorsement  and  transfer  such  paper. 

The  power  to  transfer  paper  for  collection  is  one  which  au- 
thorizes the  cashier  to  indorse  the  same. 

The  various  forms  (or  language)  employed  in  the  indorse- 
ment of  negotiable  paper  is  important. 

There  are  several  variations  of  the  simple  indorsement  "'  for 
collection,"  evidencing  the  same  intent  to  retain  title  in  the 
indorser. 

For  example,  an  indorsement  in  the  following  form  "  For 
collection  for  account  "  of  a  certain  person  named  does  not 
pass  the  title  to  the  paper.^ 

iSTor  does  the  indorsement  which  reads  as  follows,  "  Pay  to 
B  or  order,  for  account  of  C  "  pass  the  title  of  the  paper.^*^ 

iSTeither  do  the  indorsements,  "  For  collection  on  account," 
or,  '"  For  collection  and  credit,"  pass  the  title  of  the  paper. ■'^ 

8  Franklin    Bank    v.    (Stewart,    37  lo  White    v.    National    Bank,    162 

Me.   519.  U.  S.  G58. 

0  First  National   Bank   of   Crown  n  Armstrong  r.  National  Bank  of 

Point    v.    First    National    Bank    of  Bovertown,  90  Ky.  431. 
Richmond,  76  Ind.  561. 


154  The  Cashiek.  [cii.  x. 

It  is  held,  however,  in  the  case  of  Fawsett  v.  I^ationat  Life 
Insurance  Company,  5  Ilh,  App.  272,  that  an  indorsement 
made  by  the  payee  in  the  following  form,  ''  Pay  to  the  Second 
National  Bank  of  M  for  collection  of  account  of  II,  executor 
of  A,  deceased,"  passes  the  title  to  the  paper. 

If  the  indorsement  is  made  by  the  cashier  in  his  individual 
capacity,  it  may  become  a  question  whether  the  transaction  is 
one  which  wall  bind  the  bank.  As  previously  stated  in  the 
discussion  of  the  question  as  to  the  individual  or  official  signing 
of  the  signature  of  the  cashier,  an  indorsement  signed  by  him 
in  a  personal  capacity  may  raise  the  question  of  fact.  Is  the 
signing  a  personal  or,  an  official  act?  If  it  can  be  shown  that 
it  was  a  bank  transaction,  the  bank  is  bound  by  the  language 
of  the  indorsement. 

§  136.  Indorsement  for  accommodation. 

Tlie  cashier  of  a  bank  has  no  inherent  authority  to  indorse 
paper  of  another  in  behalf  of  the  bank,  for  accommodation. 
Neither  can  this  power  be  conferred  upon  a  cashier  by  the 
board  of  directors.  The  bank  has  no  authority  to  enter  into 
such  transactions. 

Tliere  are  certain  limitations  placed  upon  him  as  cashier  in 
the  indorsement  of  paper  belonging  to  the  bank,  but  he  has 
the  right  inherently  in  his  office  to  indorse  for  collection  and 
discount,  but  has  no  authority  to  transfer  judgments  standing 
in  favor  of  the  bank.  His  authority  in  this  respect  only  ex- 
tends to  negotiable  instruments.  The  president  and  directors 
are  the  only  persons  who  can  legally  make  a  transfer  of  a  judg- 
ment; and  where  the  cashier  acts  as  their  agent,  it  should 
appear  in  evidence. ^^ 

It  has  been  held  in  the  case  of  Crockett  &  Harper  v.  Young 
et  al,  1  S.  M.  6z  M.  (Miss.)  214,  that  the  cashier  has  the  au- 
thority under  the  direction  of  the  board  of  directors  to  indorse 
negotiable  paper  in  payment  of  the  bank's  debts. 

This  power,  under  direction  of  the  board  of  directors,  au- 
thorizes the  cashier  to  settle  with  all  legitimate  creditors  of 
the  bank  while  the  same  remains  solvent,  by  assigning  to  them 
the  negotiable  promissory  notes  of  the  bank. 

12  Holt  et  ah  r.  Bacon  ct  al,  25  Miss.  567. 


CH.  X.]  Bankii^^g.  155 

Tlie  question,  plainly  stated,  is,  can  a  hnnJr  transfer  its  se- 
curities to  depositors  in  settlement  of  their  deposits? 

The  cashier  has  no  inherent  power  or  implied  authority  to 
make  transfers  or  assignments  of  the  bank's  negotiable  instru- 
ments for  this  purpose,  but,  under  authority  by  the  board  of 
directors,  he  may  assign  and  deliver  negotiable  notes  to  any 
depositor  of  the  bank  in  payment  and  settlement  therefor. 

In  the  case  of  Schneitman  v.  Xoble,  75  Iowa,  120  (39  :N".  W., 
221),  the  court  holds  that  in  the  absence  of  a  more  special 
authority,  the  cashier  would  bo  restricted  in  his  power,  to  bind 
his  principal  to  the  doing  of  such  acts  as  are  usually  performed 
by  persons  who  occupy  the  position  he  held. 

The  court  holds  in  this  case  that  in  the  absence  of  proof  of 
special  authority  which  the  cashier  did  not  have,  he  was  devoid 
of  the  power  inherently  in  his  office  to  settle  with  depositors, 
by  transferring  to  them  promissory  notes  or  other  securities 
of  the  bank. 

The  opinion  denies  the  inherent  power  upon  the  following 
grounds,  that  the  agent  cannot  bind  his  principal  "  only  by 
acts  done  in  the  usual  and  ordinary  course  of  business." 

We  find  then  that  the  law  establishes  the  rule  to  he  that  the 
cashier  of  a  hank  may,  without  special  authority  from  the  hoard 
of  directors,  transfer  and  indorse  the  negotiahle  paper  of  the 
hank  in  its  ordinary  course  of  husiness;  hut  that  he  is  precluded 
from  making  such  indorsements  with  the  intent  and  purpose 
of  settling  with  a  creditor  or  depositor  of  the  hank,  and  that 
hefore  such  settlements  are  made,  direct  or  special  authority 
must  he  ohtained,  or  his  acts  afterwards  ratified  hy  the  hoard  of 
directors. 

The  rule,  as  laid  down  and  universally  adopted  ,and  sus- 
tained by  the  courts,  cannot  be  questioned,  and  possibly  should 
not  be  in  any  way  criticized,  but  it  is  certainly  open  to  dis- 
cussion, as  stated,  the  rule  gives  the  cashier  the  inherent  power 
to  assign  and  indorse  all  negotiable  paper  belonging  to  tlie 
bank  in  the  ordinary  transactions  which  may  daily  occur. 

The  cashier  of  the  bank  is  inherently  endowed  with  the 
power  to  receive  or  reject  a  deposit.  He  may  also  at  any  time 
upon  demand,  and  when  requested  so  to  do,  repay  such  de- 
posits.    He  has  the  inherent  power  to  repay  a  deposit  before 


15G  The  Cashier.  [cii,  x. 

a  demand  is  made  for  the  same  and  settle  the  account  with 
the  depositor. 

As  cashier  of  the  bank  he  may  nnder  direction  make  dis- 
counts, and  perform  all  other  acts  necessary,  and  relating  to 
the  notes  and  personal  property  belonging  to  the  bank.  His 
power  in  all  these  respects  is  not  limited  by  restrictions  or 
directed  by  special  authority  from  the  board  of  directors. 
They  are  poAvers,  as  stated,  inherent  in  the  office.  It  becomes 
his  duty  to  pay  deposits  upon  demand  and  to  pay  the  same  in 
current  funds.  "While  this  is  the  rule,  and  one  which,  in 
nearly  all  cases,  the  depositor  would  insist  upon  being  fulfilled, 
we  can  conceive  of  no  reason  or  law  prohibiting  the  cashier 
through  the  inherent  power  in  his  office,  from  transferring  a 
negotiable  instrument  of  the  bank  if  at  the  time  of  the  trans- 
action the  bank  is  solvent,  to  the  depositor  in  payment  of  his 
deposit. 

The  cashier  cannot  settle  with  a  depositor  in  this  manner 
without  his  consent,  as  all  deposits,  when  repaid  as  previously 
stated,  must  be  paid  in  current  funds.  The  transaction,  there- 
fore, is  one  which,  if  the  depositor  accepts,  agreeing  to  take 
in  lieu  of  current  funds  the  assignment  of  a  note  belonging  to 
the  bank,  no  one  should  be  heard  to  complain. 

§  137.  Cashier's  powers  and  duty  when  "  run  on  bank." 

When  a  run  occurs  upon  a  bank  the  powers  of  the  cashier, 
in  relation  to  the  property  of  the  bank,  are  not  changed  or  in 
any  way  affected.  All  the  rights  inherent  in  his  office,  or  special 
powers  conferred  upon  him  by  the  board  of  directors,  or 
granted  to  him  by  the  charter  and  by-laws  of  the  corporation 
are  such  as  must,  during  such  dangerous  periods,  all  be  put  in 
use. 

A  run  may  occur  at  any  time.  It  is  frequently  induced  or 
occasioned  by  a  false  report  put  into  circulation  by  some  enemy 
of  the  bank  or  suspicious  person. 

When  the  bank  is  being  run  by  its  depositors,  and  they  are 
demanding  tlic  immediate  payment  of  their  deposits ;  the  cashier 
being  usually  in  charge  and  the  executive  officer  of  the  bank, 
and  having  under  his  control  and  direction  all  the  funds  of  the 
bank,  he  has  the  inherQut  power  to  put  into  exercise  every 
usage,  custom,  privilege,  and  law,  in  order  to  protect  the  in- 


en.  X.]  Banking.  157 

terests  of  the  bank ;  and  see  that  no  depositor  or  creditor  obtains 
a  preferred  jjosition  or  right  over  another  creditor  equally 
entitled. 

In  such  an  emergency  the  cashier  may  personally  take  charge 
of  all  the  affairs  of  the  bank  to  the  extent  of  examining  into 
each  transaction  as  it  may  occur.  lie  has  the  power  to  refuse 
payment  upon  the  presentation  of  a  check,  until  sufficient  and 
reasonable  time  is  given  to  ascertain  that  the  account  upon  which 
the  check  is  drawn  is  in  sufficient  funds  to  pay  the  same ;  and 
not  until  such  examination  of  the  drawer's  account,  can  the 
holder  of  the  check  insist  upon  payment.  In  a  previous  chapter 
the  case  of  Marzetta  y.  "Williams,  was  cited  to  show  that  tlie 
cashier  was  entitled  to  a  reasonable  time  in  which  to  make  ex- 
amination and  payment  of  a  check  Avhen  so  presented. 

The  cashier,  as  stated,  being  held  responsible  for  all  the  funds 
of  the  bank,  is  entitled  to  know  personally  that  the  drawer  of  a 
check  is  in  funds  and  is  entitled  to  payment.  To  obtain  this 
information  requires  time  for  the  purpose  of  examining  the 
account  of  the  drawer. 

In  the  settlement  with  the  drawer  of  the  check  and  payment 
of  the  same,  the  person  to  whom  the  funds  are  to  be  paid,  are 
entitled  to  receive  payment  in  "  current  funds." 

The  cashier  has  no  right  to  purposely  delay  the  payment 
of  a  check  when  properly  dra^^^l  and  presented  for  payment, 
if  the  drawer  has  the  funds  deposited  in  the  l)ank  to  his 
credit  at  the  time  of  presentation  sufficient  to  pay  the  same. 
But  he  may  take  sufficient  time  to  satisfy  himself  as  to  the  con- 
dition of  the  drawer's  account,  and  being  satisfied  as  to  his  right, 
it  then  becomes  the  duty  of  the  cashier  personally,  or  through 
the  paying  teller  of  the  bank,  to  pay  the  same. 

It  then  becomes  the  duty  of  the  cashier,  under  such  extra- 
ordinary conditions  affecting  the  bank,  to  act  with  great  care 
and  deliberation.  More  than  ordinary  care  and  supervision  is 
demanded  of  him  in  such  an  emergency.  Ilis  duties  are  at  all 
times  burdened  with  responsibility,  but  when  the  bank's  credit 
and  life  is  in  jeopardy,  his  duties  become  very  strenuous,  and 
his  powers  under  such  emergencies  affecting  the  bank  are  en- 
larged, and  he  may,  in  order  to  preserve  the  bank's  credit  and 
safety,  make  discounts,   assign  notes,  bills  of  exchange,   and 


158  The  Casiiiee.  [ch.  x. 

pledge  of  securities  of  the  Lank  and  when  authorized  borrow 
money  to  meet  the  immediate  demands  of  the  bank.-'^ 

If  his  function  or  right  to  borrow  money  is  divested  and  the 
right  a-h^ne  is  in  the  board  of  directors,  though  during  such 
an  emergency,  he  cannot  borrow  money  for  the  bank. 

§  138.  Cashier  borrowing  money  —  Inherent  power. 

This  is  a  power  that  many  cashiers  assume  and  exercise,  but 
the  authorities  do  not  agree  that  it  is  inherent  in  the  office.  The 
principals  of  law  do  not  sanction  it  as  an  inherent  power  in  the 
office.  Some  of  the  leading  authorities,  however,  lay  down  the 
rule  wdthout  qualification  or  restriction  and  say  that  the  cashier 
may  borrow  moi-v.^v  on  behalf  of  the  bank,  and  that  this  power 
is  inherent  in  the  office  most  of  the  authorities  justify  and  sanc- 
tion this  extraordinary  authority  by  simply  stating  that  custom 
and  usage  in  the  banking  business  authorize  it. 

It  is  necessary  in  the  presentation  of  this  important  ques- 
tion, to  ascertain  the  true  position  and  rights  of  the  cashier  in 
this  particular.  He  is  the  executive  officer  of  the  bank.  lie 
is  in  charge  of,  and  is  held  responsible  for  the  cash  and  all  the 
personal  property  of  the  bank.  He  can  accept  or  refuse  ac- 
counts. He  can  loan  money  by  the  order  of  the  board  of  di- 
rectors and  take  notes.  He  can  buy  and  sell  notes,  foreign  and 
inland,  bills  of  exchange.  He  can  certify  checks  for  others, 
but  not  his  own  check.  He  can  issue  letters  of  credit,  certifi- 
cates of  deposit,  attend  to  the  transfer  of  stock,  indorse  notes 
for  collection,  employ  an  attorney  to  make  collections,  all 
of  which  powers  inherently  belong  to  the  office  of  cashier,  but 
the  right  to  borrow  money  for  the  bank  certainly  is  not  an 
inherent  power  belonging  to  the  office. 

In  the  discussion  of  this  important  question,  and  in  order 
to  determine  his  rights,  it  becomes  necessary  to  examine  the 
leading  authorities  upon  the  subject. 

It  should  be  understood  that  there  is  no  contention  upon  the 
question  as  to  the  power  of  the  bank,  when  acting  through  its 
board  of  directors,  to  borrow  money  for  the  corporation,  pro- 
viding it  acts  within  its  corporate  authority  and  the  law. 

1^  City  National  P.ank  r.  Cliemioal        ]r)2:  Sturjjos  r.  Bank  of  Cirploville, 
National    Bank.   80    PVl.   Rep.   859;        11   Oliio  State,  153. 
Barnes   v.  Ontario  Bank,   19   N.   Y. 


CH.  X.]  Banking.  159 

The  question  here  discussed  is,  has  the  cashier  the  inherent 
power  to  borrow  money  for  the  hank? 

In  presenting  the  question  it  also  becomes  necessary  to  de- 
termine to  what  extent  are  the  rights  and  jiowers  of  corpora- 
tions in  this  particular. 

The  borrowing  of  money  by  a  corporation  is  the  creation  of 
a  debt  therefore  the  question  reduces  itself  to  one  stated  as 
follows:  When  and  how  may  the  corporation  (bank)  borrow 
money  i  Does  a  custom  or  usage  authorize  a  corporation, 
through  one  of  its  executive  officers,  without  authority  from 
its  board  of  directors,  to  create  a  debt  ? 

Banking  corporation  are  institutions,  organized  and  author- 
ized by  law,  A  national  bank  deri\es  all  its  powers  from  the 
laws  enacted  by  Congress,  and  their  powers  are  limited  to  the 
express  provisions  of  law  and  such  incidental  powers  as  are 
necessary  in  the  conduct  of  their  business. 

The  statute  governing  national  banks  is  silent  upon  the  ques- 
tion of  power  of  a  national  bank  to  borrow  money ;  but  it  has 
been  held  that  it  has  incidentally  the  power  and  that  this  power 
may  be  used.  This  question  has  been  discussed  in  another 
chapter,  under  the  title,  "  Banks  borrowing  money."  The  dis- 
cussion there  relates  to  the  power  of  banks  to  borrow,  while 
here  the  question  is  the  "  power  of  the  cashier  to  borrow." 

In  the  case  of  Western  National  Bank  v.  Armstrong,  152 
U.  S.  346,  the  -court,  in  discussing  the  power  of  an  executive 
officer  of  the  bank  to  contract  an  indebtedness,  where  it  has  been 
shown  that  the  vice-president  of  the  bank,  without  authoritv 
from  the  board  of  directors,  had  borrov/ed  the  sum  of  $200,000, 
says:  "It  cannot  he  'pretended  as  such  that  he,  the  vice-presi- 
dent, had  power  without  authority  from  the  hoard  to  hind  the 
hank  by  horrowing  $200,000  at  four  months'  time."  And  upon 
the  ciuestion  as  to  the  authority  of  the  hank,  fhouqli  actinq 
through  its  hoard  of  directors  to  borrow,  the  court  says:  ''It 
might  even  he  questioned  whether  such  a  transaction  icoidd  he 
within  the  power  of  the  hoard  of  directors."  We  iind  the  su- 
preme Court  of  the  United  States  authoritatively  declaring  the 
law  to  be  that  an  executive  officer  of  the  bank  has  no  authority 
to  bind  it  or  borrow  money  for  its  use,  without  the  authority  of 
the  board  of  directors. 

The  inherent  authoritv  of  the  cashier  to  borrow  monev  for 


IGO  The  Cashier.  [ch.  x. 

a  national  bank,  is  denied  bv  the  Supreme  Court  of  the  United 
States. 

The  court,  in  its  opinion,  further  states :  "  Xor  do  we  doubt 
that  a  bank,  in  certain  circumstances  may  become  a  temporary 
borrower  of  money,  yet  such  transactions  woukl  be  so  much 
out  of  the  course  of  ordinary  and  legitimate  bankins;  as  /o 
require  iliose  mahing  the  loan  to  see  to  it  that  the  officer  or 
agent,  acting  for  the  hank,  had  special  authority  to  borrow  the 
money/' 

The  law  of  the  Supreme  Court  of  the  United  States,  as  it 
stands  at  the  j^resent  time,  upon  the  inherent  power  of  an 
executive  othcer  of  a  national  bank,  to  borrow  money,  is,  that 
he  lias  no  inherent  power ;  that  such  power  can  only  be  used  by 
him  by  authority  and  under  direction  obtained  from  the  board 
of  directors. 

State  banks  (so-called),  are  organized  under  special  banking 
laws,  or  under  the  general  incorporation  laws  enacted  by  the 
Legislature  of  the  various  States.  Where  a  banking  corpora- 
tion is  incorporated  under  such  general  or  special  laws,  and 
the  law  restricts  such  coi-poration  in,  or  provides  how,  debts 
may  be  created,  no  debt  of  any  such  corporation  is  valid  or 
binding  upon  it  unless  all  the  necessary  steps  in  conformity  to 
law  are  taken;  and  a  cashier  of  any  such  banking  corporation 
has  no  inherent  power  to  bind  it  by  borrowing  money,  which 
act  is  creating  a  debt,  unless  such  power  is  conferred  upon 
him  by  the  directors. 

In  view  of  the  fact  that  the  Supreme  Court  of  the  United 
States  has  declared  the  law  to  be,  that  under  the  Xational 
Banking  Law  the  cashier  or  executive  officer  has  no  power 
inherent  in  his  office  to  borrow  money  for  the  bank,  it  is 
deemed  advisable  to  review  some  of  the  leading  cases  of  the 
State  courts  which  have  held  that  the  cashier  has  power  as  a 
general  agent  of  the  bank  inherently  in  his  office  to  borrow 
money  for  the  bank.  In  a  leading  case  determined  by  the 
Supreme  Court  of  the  State  of  Illinois,  Mr.  Justice  Sheldon, 
delivering  the  opinion  of  the  court,  sustains  the  Appellate 
Court,  which  holds  that  where  the  cashier  of  a  bank  is  also 
the  general  manager  of  the  same,  and  that  it  was  one  of  the 
usual  customs  or  operations  of  the  bank,  in  the  vicinity  or 
town  in  which  the  bank  was  located,  to  borrow  money  on  time 


CH.  X.]  Banking.  161 

and  execute  a  note  therefor,  that  such  person  while  acting 
as  cashier  and  manager  for  the  bank,  who  borrowed  in  its 
name  a  certain  sum  of  money  and  executed  and  delivered  a 
note,  held:  that  the  bank  was  liable.^* 

It  mnst  be  noted  that  in  this  case  the  cashier  was  also  shown 
to  be  the  general  manager  of  the  bank,  and  was  proven  to  be 
the  general  agent  of  the  bank  and  at  the  time  of  the  execution 
of  the  note  by  the  cashier  it  was  shown  that  the  bank  was  a 
private  banking  institution,  not  incorporated  under  any  law 
of  the  State  and  therefore  not  under  the  same  limitations  and 
restrictions  as  to  the  creation  of  debts  imposed  upon  incor- 
porated banking  companies. 

An  early  and  leading  case  frequently  cited  as  giving  inherent 
power  to  the  cashier  of  a  bank  to  borrow  money  is  the  case  of 
Barnes  v.  Ontario  Bank,  19  ]^.  Y.  152.  In  this  case  it  ap- 
pears, that  the  cashier  and  chief  financial  officer  of  the  bank 
issued  certificates  of  deposit  of  the  bank  and  delivered  the 
same  to  one  Hollister  who  had  no  funds  in  the  bank,  but  who 
was  directed  bv  the  cashier  to  negotiate  the  certificates.  The 
agent,  Hollister,  indorsed  the  certificate  and  procured  a  third 
person  to  sell  it.      The  questions  presented  in  this  case  are: 

1.  Did  the  bank  have  power  to  borrow  the  money? 

2.  AVas  the  cashier  the  proper  agent  to  execute  that  power 
without  any  special  delegation  of  authority  thus  to  act? 

The  court  says :  "  That  the  power  to  borrow  existed  was 
determined  by  this  court  upon  the  fullest  examination  in  the 
case  of  Curtis  v.  Leavitt,  15  iS[.  Y.  9.  That  the  cashier  in 
virtue  of  his  general  employment,  could  exercise  the  power,  was 
not  denied  upon  the  argument  and  the  proposition  does  not 
admit  of  a  reasonable  doubt." 

"  In  the  next  place,  if  the  bank  could  borrow  money,  it  could 
execute  and  deliver  an  assurance  or  undertaking  for  the  pay- 
ment of  the  sum  alone  in  any  form  not  forbidden  by  the  terms 
or  just  interpretation  of  some  statute  of  this  State.  This  was 
also  settled  in  the  case  above  mentioned.  There  is  no  pretense 
that  these  certificates  of  deposits,  payable,  as  they  were,  on 
demand,  fall  within  any  of  the  restraints  imposed  by  law  upon 
the  banking  institutions  of  the  State.     They  were,  therefore, 

i4Crain  et  al   r.  National  Bank,  114  111.  516. 
11 


162  The  Cashier.  [ch.  x. 

valid  instruments,  so  far  as  any  question  of  corporate  power  to 
issue  them  is  concerned." 

The  law  of  the  State  as  it  existed  at  this  time  authorized  the 
cashier  to  draw  and  sign  certificates  of  deposit,  and  it  appearing 
that  this  particular  certificate  of  deposit,  being  authorized  by 
law  and  having  passed  into  the  hands  of  an  innocent  purchaser, 
without  notice  of  the  fact,  that  Hollistcr,  to  whom  the  same 
had  been  issued,  had  made  no  deposit  in  the  bank  representing 
the  same,  the  bank  was  rightfully  held  responsible. 

The  court,  in  further  discussing  the  question,  says :  "  The 
cashier,  therefore,  in  issuing  such  instruments,  acted  under  his 
authority,  and  in  so  doing,  he  wielded  the  power  of  the  cor- 
poration itself.  The  corporation,  therefore,  cannot  be  per- 
mitted to  repudiate  the  obligation  on  the  mere  ground  that  it 
was  not  duly  executed." 

It  must  be  noted  that  the  law  authorized  the  cashier  to  draw 
certificates  of  deposit,  but  the  assumption  is  always  that  they 
are  drawn  upon  a  deposit  which  has  previously  been  made  by 
the  o^\mer  of  the  certificate.  It  cannot  be  contended  that  it  is 
a  transaction  in  the  nature  of  creating  a  debt  as  debts  are 
usually  created,  namely,  by  executing  a  promissory  note,  and 
therefore  this  case,  when  cited  in  support  of  the  inherent 
power  of  the  cashier  to  borrow  money,  is  not  in  point. 

In  the  case  of  Ballston  Spa  Bank  v.  The  Marine  Bank  and 
others,  16  Wis.  125,  the  court,  in  discussing  the  inherent  power 
of  the  cashier  to  borrow  money,  disposes  of  the  question  as 
follows :  The  court  says,  "  It  was  competent  for  the  cashier, 
a.s'  agent  for  the  hoard  of  directors,  to  execute  the  promissory 
notes  in  question  and  bind  the  bank  for  such  execution. 
"Whether,  then,  the  cashier  has  prima  facie  authority  by  virtue 
of  his  ofiice,  or  whether  absolute,  or  whether,  still,  the  parties 
seeking  to  charge  the  bank  through  his  act,  must  give  evidence 
that  he  was  expressly  authorized  by  the  board  of  directors,  we 
need  not  now  inquire,  A  subsequent  ratification  is  equivalent 
to  a  previous  expressed  authority." 

The  court  very  carefully  and  purposely  refrains  from  declar- 
ing that  the  cashier  has  inherent  power  to  execute  promissory 
notes  and  borrow  money  for  the  ])ank,  but  very  correctly 
states  and  emphasizes  the  law  to  be  that  if  such  notes  are  issued, 
a  subsequent  ratification  is  equivalent  to  a  previous  express 
authority. 


CH.  X.]  Banking.  163 

A  recent  and  very  important  case,  discussing  this  question, 
is  the  case  of  City  National  Bank  v.  Chemical  National  Bank, 
80  Fed.  Rep.  859.  The  importance  of  this  case  demands  that 
the  opinion  of  the  court  should  be  given  in  full. 

Opinion : 

In  this  suit  by  the  Chemical  National  Bank  of  St.  Louis,  Mo., 
against  the  City  National  Bank  of  Quanah,  Tex.,  the  plaintiff 
by  its  petition  sought  to  recover  against  defendant  on  certain 
promissory  notes  executed  by  the  defendant  bank  through  its 
cashier,  William  F.  Brice.  There  was  also  an  account  in  the 
petition  for  money  loaned,  covering  the  same  transaction  as  that 
embodied  in  the  notes.  The  City  National  Bank  defended  on 
the  ground  that  the  action  of  Brice  was  not  its  action,  and  that 
it  never  made  the  loans  or  executed  the  notes,  and  that  the  trans- 
action by  Brice  was  for  his  personal  benefit,  and  did  not  inure 
to  the  benefit  of  the  bank  in  any  way.  The  record  discloses 
the  fact,  which  is  undisputed,  that  Brice  was  the  cashier  of  the 
City  National  Bank,  and  that  in  1894  he  applied  to  the  cashier 
of  the  Chemical  Bank  for  accommodations,  proposing  to  keep 
a  balance  in  the  Chemical  Bank,  and  to  send  it  the  collections 
in  St.  Louis  of  the  City  National  Bank.  Brice  also  sent  to  the 
Chemical  National  Bank,  to  be  used  for  comparison,  what  he 
represented  to  be,  and  what  purported  to  be  the  signatures  of 
the  officers  of  the  City  Bank;  also  what  purported  to  be  a  reso- 
lution of  the  directors  of  the  City  Bank,  authorizing  him  as 
cashier  to  borrow  from  time  to  time,  and  to  rediscount  with  the 
Chemical  Bank,  the  whole  or  any  part  of  $10,000,  and  to 
deposit  as  collateral  paper  made  by  the  customers  of  the  City 
National  Bank.  The  correspondence  resulted  in  an  agreement 
between  the  cashiers  of  the  two  banks,  and  on  August  27,  1894, 
a  note  for  $5,000  was  sent  by  Brice  to  the  Chemical  Bank. 
This  note  was  signed  "  City  National  Bank,  by  William  F. 
Brice,  Cashier,"  V\^ith  the  seal  of  the  bank  affixed.  Certain  col- 
lateral, amounting  to  $7,640,  consisting  of  what  purported  to  be 
notes  payable  to  the  City  Bank,  was  forwarded  with  this  note. 
Subsequently  a  note  similarly  signed  was  made  on  September 
27,  1894,  for  a  like  amount,  with  which  collateral,  or  what  pur- 
ported to  be  collateral,  amounting  to  over  $8,000,  was  placed. 
The  proceeds  of  these  notes,  when  discounted  by  the  Chemical 


164  TnE  Cashier.  [ch.  x. 

Bank,  were  placed  to  the  credit  of  the  City  Bank,  bnt  unques- 
tionably a  large  proportion  of  the  amount  was  used  by  Brice 
for  his  indi^ddual  benefit.  Soon  after  these  transactions  3,000 
silver  dollars  were  sent  by  the  Chemical  Bank,  on  a  telegram 
requesting  the  same,  signed  "■  City  Xational  Bank,"  and  this 
silver,  according  to  the  evidence,  went  into  the  vaults  of  the 
City  Bank.  There  was  considerable  evidence  in  the  case,  but 
it  need  not  be  set  out  in  detail,  as  the  above  statement  embraces 
the  material  facts  necessary  to  an  understanding  of  the  issues 
involved.  The  court  directed  a  verdict,  under  all  the  evidence 
ir.  the  case,  for  the  plaintiff,  and  the  question  presented  is,  was 
this  action  of  the  court  right. 

Xot  only  did  Brice,  the  cashier  of  the  City  Bank,  have  the 
usual  powers  of  a  cashier  —  of  general  management  of  the 
bank's  business,  as  to  loans,  rediscounts,  etc. —  but  the  testi- 
mony of  the  president  shows  that  the  actual  management  of 
the  City  Bank  was  left  almost  entirely  to  Brice  after  April  2, 
1894:.  Brice  seems  to  have  been  left  by  the  president  and 
directors  of  the  bank,  in  connection  with  his  son,  as  assistant 
cashier,  in  full  control  of  the  bank's  business.  The  letters 
written  by  Brice  in  reference  to  loans  from  the  Chemical  Bank, 
and  all  the  correspondence,  were  on  the  regular  letter  paper, 
and  what  was  piirported  to  be  a  copy  of  a  resolution  of  the 
directors  authorizing  the  loan.  There  was  printed  on  all  the 
paper  so  used  this  heading: 

The  City  National  Bank.     Capital  $100,000. 

G.  S.  "Wliite,  President.  J.  AV.  Colston,  Vice  President. 

"Wm.  F.  Brice,  Cashier.  E.  H.  Brice,  Asst.  Cashier. 

AYhile  it  appears  to  be  true  that  the  signature  of  the  presi- 
dent, though  a  good  imitation  of  his  genuine  signature,  was  a 
forgery,  and  while  what  purported  to  be  a  resolution  of  the 
board  of  directors  was  also  a  forgery,  there  was  nothing  what- 
ever to  excite  the  suspicions  of  the  officials  of  the  Chemical 
Bank  as  to  their  genuineness.  The  action  of  Brice  was  within 
the  general  scope  of  his  duties  as  cashier  of  the  bank,  and  there 
was  nothing  whatever  in  it  calculated  even  to  arouse  inquiry 
as  to  Brice's  honesty,  and  as  to  the  transaction  being  made  in 
good  faith  on  behalf  of  the  City  Bank. 


CH.  X.]  BAyKi:^G.  165 

Any  authority  that  may  be  found  to  the  effect  that  redis- 
connting  the  bank's  paper  does  not  come  within  the  scope  of 
the  powers  of  the  cashier  of  a  bank  would  not  be  applicable  to 
the  facts  here.  There  is  e\'idence  in  this  case  to  show  that  it 
was  customary  for  similar  banks  in  Texas,  during  certain  sea- 
sons, to  borrow  money  this  way.  Considering  the  amount 
and  character  of  these  loans,  and  the  whole  nature  of  the  trans- 
action with  the  Chemical  Banls:,  there  was  nothing  done,  as  it 
appeared  to  the  Chemical  Bank  that  Brice  could  not  legally  and 
properly  do.  The  cases  of  AVestern  lsa.t.  Bank  r.  Armstrong, 
152  IT.'^S.  346,  li  Sup.  Ct.  572,  and  Chemical  Xat.  Bank  v. 
Armstrong,  13  C.  C.  A.  47,  65  Fed.  573,  are  not  applicable, 
on  their  facts,  to  this  case.  The  character  and  amount  of  the 
loans,  and  the  manner  in  which  they  were  made  in  both  of  these 
cases,  were  such  as  might  well  have  raised  suspicion  as  to  the 
regularity  and  bona  fide  character  of  the  transaction.  In  this 
case  the  negotiations  and  all  the  correspondence  were  such  as 
might  well  lead  the  officers  of  the  Chemical  Bank  to  believe 
that  Brice  was  acting  on  full  authority,  with  perfect  good  faith 
and  honest  intention.  The  transaction  with  the  Chemical  Bank 
being,  as  we  have  stated,  within  the  general  scope  of  the  duties 
of  a  bank  cashier,  and  Brice  having  been  placed  by  the  authori- 
ties of  the  City  Bank  in  a  position  and  afforded  facilities  to 
enable  him  to  make  these  loans  as  its  representative,  we  do  not 
see  how  the  court  could  have  done  otherwise  than  direct  a  ver- 
dict, as  it  did  in  favor  of  the  plaintiff  on  these  notes.  A  sen- 
tence or  two  from  leading  authorities  vrill  indicate  without 
multiplying  citations,  the  law  we  think  applicable  to -this  case: 
"  The  cashier  is  the  executive  officer  through  whom  the  whole 
financial  operations  of  the  bank  are  conducted."  Merchants' 
Bank  V.  State  Bank,  10  Wall.  601.  "  The  cashier  has  inherent 
power  to  borrow  money  in  the  regular  course  of  the  business 
of  the  bank,  and  may  secure  the  loan  by  note  or  pledge  of  the 
bank's  property."  Morse,  Banks,  §  160.  See  also  Mor.  Priv. 
Corp.,  §§  539,  597. 

The  first  specification  of  error  is  that  the  court  erred  in 
admitting  in  evidence  the  notes  executed  by  Brice  as  cashier 
of  the  City  Bank  to  the  Chemical  Bank,  without  proof  of  execu- 
tion, notwithstanding  the  plea  of  non  est  factum.  They  were 
admitted  on  an  admission  by  defendant  that  Brice,  who  signed 


166 


The  Cashier. 


[CH. 


them,  was  the  cashier  of  the  defendant  bank,  that  the  same  were 
in  his  handwriting,  and  that  the  seal  affixed  was  the  genuine 
seal  of  the  hank.     There  was  no  error  in  this. 

The  second  specification  of  error  is  that  the  court  erred  in 
admitting  in  evidence  what  purported  to  be  a  copy  of  the  reso- 
lution of  the  board  of  directors  authorizing  Brice  to  make  these 
loans.  There  seems  to  have  been  no  question  but  that  Brice 
placed  this  paper,  containing  what  purported  to  be  the  action 
of  the  board  of  directors,  with  the  Chemical  Bank,  in  connec- 
tion with  the  loan  transaction;  and  we  think  the  paper  was 
properly  admitted,  its  weight  and  value  as  evidence  to  be  after- 
ward determined. 

The  third  specification  of  error  is  that  the  court  erred  in 
refusing  to  instruct  the  jury  to  return  a  verdict  for  the  defend- 
ant.    In  this  the  court  was  clearly  right. 

The  fourth  assignment  of  error  is  that  the  court  erred  in 
instructing  the  jury  to  return  a  verdict  for  the  plaintiff.  We 
think,  on  the  whole  case  before  the  court,  for  the  reasons  we 
have  heretofore  given,  that  this  instruction  to  return  a  verdict 
for  the  plaintiff  was  right. 

The  court  having  correctly  directed  a  verdict  for  the  plaintiff, 
the  judgment  based  thereon  should  be  affirmed;  and  it  is  so 
ordered.'' 

The  facts  in  this  case  show  that  the  Chemical  Xational  Bank 
believed  that  Brice  was  acting  under  full  authority,  with  per- 
fect good  faith  and  honest  intention.  Relying  upon  such  au- 
thority and  resolutions  and  believing  them  to  be  genuine, 
authorizing  Brice  to  borrow  the  money,  the  court  held  that  the 
City  iSTational  Bank  could  not  defeat  the  debt  for  lack  of  au- 
thority, while  at  the  same  time  accepting  the  benefits  resulting 
from  the  loan. 

The  rule  as  well  known  and  unquestioned  is  that  the  directors 
wield  all  the  powers  of  the  corporation  for  the  purpose  of  con- 
ducting its  business. 

In  the  case  of  a  ministerial  officer  of  the  corporation,  such  as 
the  cashier  of  a  bank,  the  power  to  borrow  money  must  emanate 
from  the  board  of  directors  and  ought  to  be  proven.  The 
power,  however,  need  not  be  proved  by  the  production  of  the 
official  records,  but  may  be  proved  by  circumstances. 

The  Supreme  Court  of  the  United  States,  in  the  case  of  Min- 


cir.  X.]  Banking.  167 

ing  Co.  V.  Anglo-California  Bank,  104  U.  S.  194,  in  discussing 
this  question  in  connection  with  the  provisions  of  the  Civil  Code 
of  California,  §§  305,  354,  says: 

"  It  is  equally  clear  that  the  board  had  as  incident  to  the 
general  powers  conferred  by  law  upon  the  company  power  to 
borrow  money  for  the  purposes  of  the  corporation,  and  to  invest 
certain  officers  with  authority  to  negotiate  loans,  to  execute 
notes,  and  to  sign  checks  drawn  against  its  bank  account.  And 
it  is  settled  law  that  the  existence  of  such  authority  in  sub- 
ordinate officers,  may,  in  the  absence  of  express  statutory  pro- 
hibition, be  shown  othenvise  than  by  the  official  record  of  the 
proceeding  of  the  board.  It  may  be  established  by  proof  of 
the  course  of  business  between  the  parties  themselves ;  by  the 
usages  and  practice  which  the  company  may  have  permitted  to 
grow  up  in  its  business ;  and  by  the  knowledge  which  the  board 
charged  with  the  duty  of  controlling  and  conducting  the  trans- 
actions and  property  of  the  corporation,  had,  or  must  be  pre- 
sumed to  have  had,  of  the  acts  and  doings  of  its  subordinate 
in  and  about  the  affairs  of  the  corporation." 

That  the  cashier  may  be  delegated  with  this  power,  or  his  acts 
afterward  ratified,  is  not  questioned ;  but  we  are  unable  to  find 
an  opinion  of  a  court  which  goes  to  the  extent  (through 
custom  or  usage)  of  giving  an  unlimited  inherent  power  in  the 
cashier  to  borrow  money. 

§  139.  Inherent  power  to  collect  debts. 

The  cashier  has  inherent  authority  to  collect  debts  due 
the  bank,  and  to  accomplish  this  purpose  he  may  engage  an 
attorney  and  agree  to  pay  him  a  reasonable  compensation  for 
his  services.  His  power  in  this  particular  is  co-ordinate  with 
that  inherently  given  to  the  president  of  the  bank.^^ 

He  may,  of  course,  receive  payment  obtained  from  collec- 
tions, but  is  not  permitted  to  accept  in  payment  anything  but 
money.^^ 

He  has  also  authority  to  release  a  mortgage  debt  by  a  re- 
lease duly  executed  in  the  name  of  the  bank,  or  by  a  release 

15  Root  V.  Olcott,  42  Hun  (N.  Y.)  N.  C.  561,  32  S.  E.  889;  Bank  of 
536;  Young  v.  Hudson,  9!)  Mo.  102.5.       Commerce  :.  Hart,  37  Neb.  197. 

16  Piedmont  Bank  v.  Wilson,   124 


168  The  Cashier.  [ch.  x. 

entered  upon  the  record  in  the  recorder's  office,  where  such  a 
release  is  authorized  by  statute.^' 

He  has  power  to  transmit  notes  for  collection,  but  it  has 
been  held  that  he  has  no  power  to  enter  into  a  compromise 
with  a  creditor  of  the  bank;  and  settle  a  claim  in  favor  of  the 
bank  for  a  sum  less  than  the  actual  amount  of  such  claim. 

"When  collateral  security  is  held  bv  the  bank  to  secure  a  debt 
due  the  bank,  when  the  debt  is  paid  he  has  power  to  surrender 
and  assign  the  collateral  security  to  the  owner. -^^ 

It  has  been  held  in  the  case  of  Bridenbecker  v.  Lowell,  32 
Barb.  (N.  Y.),  9,  that  the  cashier  in  the  securing  of  a  collection 
and  debt  of  the  bank  may  make  a  compromise  of  the  claim, 
but  this  power  strictly  and  properly  belongs  to  the  board 
of  directorc-. 

§  140.  Liability  of  cashier. 

Lord  Loughborough,  in  1  II.  Bl.  151,  lays  down  the  follow- 
ing rule :  "  If  the  man  be  in  a  situation  or  profession  to  imply 
skill,  an  omission  of  that  skill  is  imputable  to  him  as  gross 
negligence."  ^^ 

Where  a  cashier  fails  to  notify  the  maker  of  a  note,  which 
is  held  by  the  bank,  and  the  bank  suffers  a  loss  and  an  indorser 
through  such  negligence  escapes  liability,  the  cashier  is  liable 
to  the  bank,  to  the  extent  of  the  loss  sustained.^ 

The  cashier  contracts  to  act  in  good  faith  and  mtli  entire 
honesty  in  transacting  all  the  business  of  the  bank,  and  to 
exercise  as  high  a  degree  and  skill  as  is  generally  exercised  by 
business  men  in  the  management  of  such  business;  but  he  is 
not  liable  for  honest  errors  in  judgment,  nor  for  the  failure 
to  take  the  utmost  precaution  possible  in  making  investments 
for  the  bank."^ 

The  cashier  is  liable  in  damages  for  an  injury  arising  from 
his  "UTongful  or  unofficial  act,  or  for  a  violation  of  the  direc- 
tions imposed  upon  him  by  the  board  of  directors  to  perform. 

"  Thus  it  has  been  held  that  where  losses  occur  to  a  savings 
bank  through  investments  by  the  president  in  securities  not 

17  Ryan  r.  Dunlap,  17  Til.  40.  184;    1    Parsons.   Cont.,   73,   74   and 

i8]\Iatlio\vs   r.  Massaclmsetts  Na-  note;   20  Pick.   1G7. 

tional  P.nnk,  1  Holmes.  396.  20  p.ithvpH  ,-.  Aladison.  10  Minn.  1. 

19  Story,  Partnership.  §§  169,  170,  21  Exchange  Bank  r.  Gardner,  73 

171,    173;    Story,    Agency,    §§    182,  N.  W.  591. 


CH.  X.]  Banking.  169 

^\ithin  the  restrictions  of  the  charter,  by  means  of  checks 
signed  and  left  in  bhmk  by  the  treasurer,  the  president  and 
treasurer  are  personally  liable,  the  president  first  and  the 
treasurer  next.  "Williams  v.  McKay,  46  N.  J.  Eq.  25,  18 
Atl.,  824.  An  honest  error  of  judgment  while  in  the  exercise 
of  ordinary  care  docs  not  make  the  president  liable  to  the  cor- 
poration. Gubbins  v.  Bank  of  Commerce,  79  111.  App.,  150. 
It  has  been  held  that,  although  he  should  have  consulted  the 
board  of  directors  before  authorizing  certain  expenditures,  yet 
if  he  acted  in  good  faith  and  did  no  more  than  what  they  prob- 
ably would  have  authorized,  he  was  not  liable  to  the  corpora- 
tion for  damages.  Davis  v.  Memphis  City  R.  Co.,  22  Fed. 
883.  It  has  also  been  held  that  a  president  of  a  national  bank 
is  guilty  of  no  want  of  ordinary  care,  in  accepting  a  leave  of 
absence  granted  to  him  of  one  year  on  account  of  ill  health 
and  is  not  to  be  held  for  neglect  of  duty  because  he  did  not 
resign.  Briggs  v.  Spaulding,  141  U.  S.,  132,  11  S.  Ct.  924, 
35  L.  ed.  6G2.  See  also  Movius  v.  Lee,  30  Fed.,  298.  It  has 
been  held,  that  the  president  of  a  corporation  is  liable,  for 
allowing  a  debt  of  a  corporation  with  which  he  is  closely  con- 
nected to  accumulate  until,  the  debtor  corporation  becomes 
insolvent,  when  it  could  have  been  saved  by  prompt  action. 
Doe  V.  Northwestern  Coal,  etc.,  Co.,  78  Fed.,  62.  But  he 
cannot  be  held  responsible  for  not  defending  a  suit,  where 
there  is  no  good  defense.  Boston  Tailoring  House  v.  Fisher, 
59  111.  App.  400. 

Tbe  cashier  may  be  liable  on  his  bond  for  making  improper 
loans,  although  the  by-laws  of  the  bank  provide,  for  the  ap- 
pointment of  a  committee,  to  control  the  making  of  loans.'^ 

§  141.  Cashier  responsible  for  subordinates,  when. 

It  is  the  duty  of  the  board  of  directors  to  employ  all  the 
subordinates  and  clerks  of  the  bank,  but  in  the  very  nature  of 
the  office  of  cashier,  the  tellers  and  bookkeepers  are  his  sub- 
ordinates and  sub-agents,  and  only  through  improper  or  negli- 
gent performance  of  his  duty  as  manager  and  superintendent 
of  the  bank,  can  he  be  held  for  the  default  or  errors  of  his 
subordinates.     He  is  only  held  as  cashier  to  exercise  such  care 

22  Wallace  j;.  Exchange  Bank,  126  Ind.  265. 


170  The  Casiiiek.  [cii.  x. 

and  supervision,  as  a  man  of  ordinary  prudence  would  do  in 
the  conduct  and  management  of  his  own  affairs.^^ 

But  where  the  cashier  without  authority  from  the  board  of 
directors  or  necessity,  employs  an  assistant  on  his  own  account, 
and  the  assistant  fraudulently  embezzles  the  funds  of  the  bank, 
the  cashier  having  fraudulently  concealed  the  fact  of  such  em- 
bezzlement after  it  came  to  his  knowledge,  he  is  personally 
liable  to  the  bank.^* 

§  142.  Cashier  —  Penalty  —  Liable,  when. 

The  cashier  of  a  national  bank  is  prohibited  by  section  5187, 
Revised  Statutes  of  the  United  States  from  countersigning  or 
delivering  to  any  association  or  to  any  company  or  person  any 
circulating  notes  contemplated  by  this  section,  except  in  ac- 
cordance with  the  true  intent  and  meaning  of  its  provisions. 

It  may  be  stated  that  this  only  applies  to  officers  of  the  gov- 
ernment. 

Section  5207,  Revised  Statutes  of  the  United  States,  pro- 
vides that  no  association,  shall  hereafter  offer  or  receive  United 
States  notes  or  national  bank  notes,  as  security,  or  as  collateral 
security  for  any  loan  of  money  or  for  a  consideration  agree  to 
withhold  the  same  from  use  or  offer  or  receive  the  custody 
or  promise  of  custody  of  such  note  as  security,  or  as  collateral 
security,  or  consideration  for  any  loan  of  money. 

The  law  further  provides  that  any  officer  or  officers  of  any 
such  national  banking  association,  who  shall  make  any  such 
loan,  shall  be  liable  for  a  further  sum  equal  to  one-quarter  of 
the  money  loaned ;  and  any  fine  or  penalty  incurred  by  a  viola- 
tion of  this  section  shall  be  recoverable  for  the  benefit  of  the 
party  bringing  such  suit. 

The  object  of  the  provision  of  this  law  is  designed  by  the 
government  to  prevent  the  locking  up  of  money. 

Section  5209,  Revised  Statutes  of  the  United  States,  pro- 
vides a  penalty  for  the  embezzlement,  abstraction  or  willful 
misappliance  of  any  of  the  funds,  moneys  or  credits  of  the 
association,  and  declares  that  every  person  who  makes  any 
false  entry  in  any  book,  report  or  statement  of  the  association, 
with  intent  to  injure  or  defraud  the  association,  or  any  other 

2-\  Batclielor  t\  Planters'  National  24  Vance  v.  Motley,  92  Tenn.  310, 

Bank,  10  Rep.  16   (Ky.  1880).  21  S.  W.  593. 


CH.  X.]  Banking.  171 

company,  body  or  politic,  or  corporate,  or  any  individual  per- 
son, or  to  deceive  any  officer  of  the  association,  or  any  agent 
appointed  by  the  Comptroller  to  examine  the  affairs  of  any 
such  association  with  intent  to  defraud  the  same,  shall  be 
deemed  guilty  of  a  misdemeanor  and  shall  be  imprisoned  not 
less  than  five  years  nor  more  than  ten. 

Section  5437,  Revised  Statutes  of  the  United  States,  pro- 
vides a  penalty  for  officers,  meaning  thereby  any  director, 
president,  cashier,  oflicer  or  other  agent  of  the  corporation,  in 
using  notes,  etc.,  of  closed  banks,  and  declare  that  if  any  per- 
son knowingly  aids  in  such  act  he  shall  be  punished  by  a  fine 
of  not  more  than  ten  thousand  dollars,  or  by  imprisonment 
not  less  than  one  year  nor  more  than  five  years,  or  by  both 
such  fine  and  imprisonment. 

Section  5497,  Revised  Statutes  of  the  United  States,  pro- 
vides a  penalty  against  every  banker,  broker  or  other  person 
not  an  authorized  depositary  of  public  moneys,  who  knowingly 
receives  from  any  disbursing  officer  or  collector  of  internal 
revenue,  or  other  agent  of  the  United  States,  any  public 
money  on  deposit,  or  by  way  of  loan  or  accommodation  with 
or  without  interest,  or  otherwise  than  in  payment  of  a  debt 
against  the  United  States,  or  who  uses,  transfers,  converts, 
appropriates  or  applies  any  portion  of  the  public  money  for 
any  purpose  not  prescribed  by  law  and  every  president,  cashier, 
teller,  director  or  other  officer  of  any  bank,  or  any  banking 
association,  who  violates  the  provisions  of  this  section,  are  de- 
clared to  be  guilty  of  an  act  of  embezzlement  of  the  public 
money  so  deposited,  loaned,  transferred,  used,  converted,  ap- 
propriated or  applied,  and  shall  be  punished  as  prescribed  in 
section  5488. 

A  violation  of  this  section  constitutes  embezzlement  and  all 
banking  institutions  not  public  depositaries  are  subject  to  the 
provisions  of  this  section. 

Tlie  fact  that  the  cashier  commits  an  act  which  is  a  violation 
of  law,  or  an  express  statute,  will  not  relieve  him  from  liabi- 
lity, unless  done  under  duress.  Where  the  cashier  obeys  an 
ordei'  of  the  board  of  directors,  which  he  knows  to  be  illegal, 
and  given  by  them  for  the  purpose  of  defrauding  the  bank, 
he  is  held  to  be  equally  guilty,  though  he  does  not  participate 
in  the  illicit  gain  obtained  from  the  bank. 


172 


The  Cashier. 


[CH. 


§  143.  Notice  to  cashier  of  bank  —  When  notice  to  bank. 

The  fjencral  rule  is  that  notice  to  the  cashier,  white  acting  as 
such  for  the  Ijanh,  is  n-otice  to  the  hank. 

The  rule,  as  stated  bv  the  court  in  the  case  of  First  National 
Bank  of  Mason  v.  Ledbetter,  34  S.  W.,  1042,  is  as  follows: 

"  The  cashier  of  a  national  bank  is  the  executive  officer  of 
the  bank  and  his  acts,  done  in  the  ordinary  course  of  business, 
bind  the  bank,  and  notice  to  him  is  notice  to  the  bank." 

Where  the  cashier  of  a  bank  conspires  with  a  third  person 
to  sell  worthless  property  to  defendant  at  par,  in  order  that 
the  proceeds  may  be  applied  to  the  payijient  of  a  debt  due  tha 
bank,  the  bank  is  chargeable  '^'ith  the  knowledge  that  the 
cashier  had  of  such  conspiracy."^ 

ISTotice  to  the  cashier  of  an  incorporated  bank  that  a  note 
discounted  with  the  bank  was  procured  by  fraud,  is  notice  to 
the  bank,  so  that  the  defense  is  available  against  it.^' 

It  is  also  held  that  knowledge  by  one  of  the  officers  of  a 
bank,  who  joined  in  the  acceptance  for  the  bank  of  a  negotiable 
note  before  due,  of  a  fact  which  would  put  a  prudent  person 
upon  inquiry  as  to  the  power  of  the  maker  to  execute  the 
paper,  is  sufficient  to  charge  the  bank  with  notice  of  a  disability, 
if  such  existed.^ 

The  knowledge  of  a  cashier  and  two  directors  that  he,  the 
cashier,  has  without  authority,  pledged  the  bank's  responsibility 
upon  the  note  of  the  corporation,  in  Avhich  such  officers  have 
an  interest  adversely  to  the  bank,  is  held  not  notice  to  the 
bank.2s 

In  the  case  of  TTinslow  v.  Harriman  Iron  Company,  42  S.  W. 
698,  where  a  holder  of  bank  stock  placed  it  in  the  hands  of  the 
bank's  cashier  for  negotiation,  and  the  cashier  obtained  a  loan 
on  the  stock,  and  was  told  by  the  owner  to  remit  the  proceeds 
to  him,  the  owner  Avas  at  the  time  indebted  to  the  bank,  and 
the  cashier,  without  authority,  deposited  the  proceeds  in  the 
bank,  by  which  it  was  appropriated  in  payuient  of  the  indebted- 
ness, held  by  the  court  that  the  bank  was  charged  with  notice 
of  the  cashier's  fraud  and  could  not  make  the  appropriation. 


25  Jlerchants'  National  Bank  v. 
Tracy.  20  N.  Y.  S.  77. 

20  Citizens'  Savings  Bank  v.  Wal- 
den,  52  S.  W.  953. 


2T  Hager  v.  National  German- 
American  Bank,  31  S.  E.  141. 

28  Fort  Dearborn  National  Bank 
t'.  yeyraour,  73  N.  W.  724. 


en.  X.]  Bai^king.  173 

The  cashier  having  been  given  full  authority  to  make  dis- 
counts, it  cannot  be  contended  in  behalf  of  the  bank  that  notice 
to  the  cashier  is  not  notice  to  the  bank  in  the  discounting  of 
notes.^^ 

Where  the  articles  of  incorporation  of  a  bank  provided  that 
"  it  is  to  act  as  an  agent  in  the  investment  of  fmids,"  and  '"  to 
transact  any  business  that  may  properly  be  done  by  a  financial 
agent;  "  and  the  cashier  of  such  bank  made  a  loan  for  a  customer 
who  had  money  deposited  therein,  and  took  the  acknowledg- 
ment to  the  mortgage  securing  the  loan,  and  had  possession  of 
the  unrecorded  mortgage,  and  received  two  installments  of 
interest,  which  he  placed  to  such  customer's  credit  on  his  pass 
book;  Held,  that  the  knowledge  of  its  cashier  was  the  knowl- 
edge of  the  bank,  affecting  it  vdth  notice  of  such  unrecorded 
mortgage."*^ 

In  the  case  of  Loring  v.  Brodie,  134  Mass.  453,  the  court 
holds  that  if  a  cashier  of  a  bank  receives  securities  on  a  loan 
from  the  bank  to  a  trustee,  with  knowledge  that  the  securities 
belong  to  a  trust,  the  bank  is  affected  with  the  knowledge  of  its 
cashier,  and  is  put  upon  inquiry  as  to  whether  the  trustee  has 
authority  to  pledge  the  securities.  The  court,  in  its  opinion, 
says:  "If  he  received  the  securities  with  a  knowledge  that 
they  were  wrong-fully  transferred  and  were  the  property  of 
others,  his  knowledge  must  affect  the  bank.  His  attitude  and 
relation  were  such  that  it  was  his  duty  to  communicate  this 
information  to  the  bank;  and  it  cannot  be  deemed  that  he  was 
a  mere  channel  of  transmission,  and  that  his  knowledge  is  to 
be  treated  as  affecting  only  himself.  Although  he  was  the 
attoraey  of  Brodie,  in  taking  care  of  and  managing  the  trust 
property,  he  was  the  cashier  also  and  there  was  a  confidence 
reposed  in  him  as  such  which  makes  his  knowledge  the  knowl- 
edge of  the  bank." 

This  doctrine  is  supported  by  the  Supreme  Court  of  the 
United  States  in  the  case  of  Duncan  v.  Jaudon,  15  Wall.  105, 
where  the  court  holds  that  notice  to  the  cashier  of  a  bank  that 
the  stock  pledged  is  trust  stock,  is  notice  to  the  bank. 

The  rule  is  again  laid  down  as  follows :     "  The  knowledge  of 

20  INIerchants'  &  Planters'  Bank  V.  30  Christie  r.  Sherwood,  113  Cal. 

Penhmd,   1   B.  C.  25.  526,  45  Pac.  Rep.  820. 


17-1:  The  Casiiiek.  [cir.  x. 

an  authorized  agent  acquired  in  the  course  of  a  given  transac- 
tion within  the  scope  of  the  agent's  authority,  is  the  knowledge 
of  the  principaL" 

The  knowledge  of  the  cashier  of  a  bank  of  a  defense  to  a 
promissory  note,  if  acquired  in  the  course  of  the  transaction 
which  results  in  the  discounting  of  the  note,  is  the  knowledge 
of  the  bank,  and  will  deprive  it  of  the  position  of  an  innocent 
holder  for  value. ^^ 

A  bank  is  not  chargeable  with  notice  of  the  misappropriation 
of  money  by  its  cashier,  acting  as  agent  for  a  third  party,  in 
his  individual  capacity ;  nor  is  it  liable  to  the  principal  for  such 
money  when  it  receives  no  benefit  therefrom.^^ 

Where  the  cashier  of  a  bank  is  also  the  secretary  of  another 
corporation,  and  while  working  in  the  interest  of  the  latter,  sold 
stock  therein,  taking  the  purchaser's  note  therefor,  which  note 
was  afterward  discounted  by  the  bank.  Held,  that  the  bank 
ic  not  affected  with  its  cashier's  knowledge  as  to  the  value  of 
the  stock  sold,  obtained  through  his  connection  with  the  other 
corporation.^^ 

It  is  held  in  the  case  of  Drovers'  l^ational  Bank  v.  Potvin,  74 
X.  W.  724,  which  case  was  appealed  from  the  Supreme  Court 
of  the  State  of  Michigan,  that  where  a  bank  had  no  committee 
or  agent  to  make  loans,  excepting  their  cashier,  evidence  that 
he  had  no  knowledge  that  a  note  indorsed  to  them  for  value 
M-as  procured  by  fraiul,  is  prima  facie  sufficient  to  show  want 
cf  such  notice  by  the  bank. 

In  the  case  of  Indian  Head  Xational  Bank  v.  Clark,  43  X.  E. 
912,  the  court,  in  discussing  the  general  rule  of  agency,  appli- 
cable both  to  corporations  and  to  natural  persons,  which  Ic 
defines  as  follows,  is  that  "  notice  to  an  agent,  while  acting  for 
his  principal,  of  facts  affecting  the  character  of  the  transaction, 
is  constructive  notice  to  the  principal,"  the  court  says,  "  that 
there  is  an  exception  to  this  rule  when  the  agent  is  engag-^d  in 
committing  an  independent  fraudulent  act  on  his  o\\ti  account, 
and  the  facts  to  be  imputed  relate  to  this  fraudulent  act.  It  is 
the  circumstance  that  the  agent,  while  acting  for  his  principal, 

SlNationnl    Bank    of    Bedford    v.  32  1 00  Fed.  Rep.  705. 

Stever,    Appollaiit,    109    Penn.    St.  3:'.  Benton     r.    German    American 

574;     Burmin<;liam     Trust     Co.     f.        National  Bank,  20  S.  W.  975. 
Louisiana   National    Bank,   99   Ala. 
379 ;  Niblack  r.  Cosier,  74  Fed.  1000. 


cii.  X.]  Banking.  175 

is  at  the  same  time  committing  an  independent  fraudulent  act 
upon  his  own  account  which  makes  the  case  an  exception  to  tlie 
genera]  rule."  ^^ 

§  144.  Cashier's  declarations  and  admissions. 

The  rule  is  that  the  declarations  or  admissions  must  he  made 
officialhj  and  within  the  scope  of  the  agent's  duties  to  hind  the 
hankJ"^' 

A  declaration  or  admission  made  beyond  the  scope  of  his 
authority  will  not  bind  the  bank.^*' 

The  cashier  of  a  bank  ordinarily  has  no  authority  to  dis- 
charge its  debtors  without  payment,  or  to  bind  the  bank  by  an 
agreement  that  a  surety  should  not  be  called  upon  to  pay  a  note 
he  has  signed,  or  that  he  would  have  no  further  trouble  from 
it." 

Where  the  cashier  attempts  to  answer  as  to  the  genuineness 
of  paper,  and  the  responsibility  of  the  makers  or  indorsers  in 
which  the  bank  has  no  interest,  and  is  not  in  any  way  affected 
thereby,  the  act  is  beyond  his  authority. 

A\niere  a  check  drawn  upon  the  bank  is  presented  to  the 
cashier  and  he  says  "  it  is  good,"  held  that  the  bank  is  bound 
as  to  the  signature  and  the  sufficiency  of  funds,  but  the  bank 
cannot  be  held  as  to  the  genuineness  of  the  filling  in. 

The  Supreme  Court  of  the  United  States,  in  the  case  of  Espy 
V.  Bank  of  Cincinnati,  18  Wall.  1-604,  says,  "The  ansvs-er  he 
gave  that  the  check  was  '  good,'  or  was  '  all  right,'  must  be 
supposed  to  be  responsiA^e  only  to  these  two  points.  The  gen- 
uineness of  the  payee's  name  and  of  the  sum  filled  in  the  body 
of  the  check  were  as  well  knoAvn  and  as  easily  ascertainable  by 
the  payees  themselves  as  by  the  bank  officer,  and  unless  the 
inquiry  was  so  framed  as  to  call  his  attention  to  these  points, 
he  had  no  reason  to  suppose,  in  the  nature  of  the  transaction, 
that  he  was  expected  to  give  information  in  regard  to  them. 
So  the  response  of  '  good '  should  not  on  sound  principle  be 
held  to  extend  to  them.  He  was  under  no  moral  or  legal  obli- 
gation to  give  an  opinion  on  these  points.     He  had  no  reason 

"4  Atlantic  Cotton  ]\Iills  v.  Indian  36  Goodbar   r.   National   Bank,   7S 

OrHiard  Mills,   147  Mass.  268,  278,  Tex.  461.  14  S.  W.  851:  Bank  of  the 

17   X.  E.  496.  ]\retropolis  v.  Jones,  8  Peters,  12. 

•-."' St  urges  r.  Bank  of  Circleville,  37  Bank  v.  Haskell,  51  N.  H.  116. 
11  Ohio  St.  153. 


176  The  CasuiePw  [cii.  x. 

to  suppose  that  he  Avas  asked  for  such  an  opinion,  and  because 
be  did  give  an  opinion  that  the  check  was  good  in  the  only 
points  of  which  he  knew  anything,  it  wonkl  be  illogical  to  hold 
the  bank  liable  on  the  ground  that  the  response  meant  good 
absolutely  and  for  all  purposes." 

The  Supreme  Court  of  Xebraska,  in  the  case  of  Grant  v. 
Cropsey,  8  Xeb.  205,  holds  that  it  is  a  firmly  established  rule 
that  when  one  by  his  words  or  conduct  willfully  causes  another 
to  believe  in  the  existence  of  a  certain  state  of  things 
and  induces  him  to  act  on  that  belief,  so  as  to  alter  his  own 
previous  position,  the  former  is  concluded  from  averring  against 
the  latter  a  different  state  of  things  as  existing  at  the  same 
time.^ 

^Vhere  the  cashier  admits  that  the  drawer  of  the  check  has 
sufficient  funds  to  pay  the  same,  the  bank  is  bound.  It  is  an 
act  within  the  scope  of  his  authority  and  is  equivalent  to  the 
verbal  certification  of  the  check. 

AVhere  a  cashier  Avas  asked  about  the  solvency  of  a  firm  and 
lie  reported  that  the  firm  "  was  good,  Avas  perfectly  solvent,'' 
afterward  the  firm  failed  and  it  was  shoAm  that  at  the  time  of 
the  inquiry  the  firm  Avas  insolvent  and  the  bank,  with  the  bank- 
rupt, Avas  sued,  held  that  the  bank  Avas  not  responsible  for  the 
statements  of  the  cashier ;  that  he  was  not  employed  by  the 
bank  to  giA-e  such  information. 

"  A  cashier  of  a  bank  who  is  also  a  director  of  a  manufactur- 
ing company,  and  as  such  director  assisting  in  promulgating 
false  statements  as  to  the  financial  condition  of  the  company, 
for  the  purpose  of  defrauding  all  of  its  creditors,  including  the 
bank,  was  not  the  agent  of  the  bank  in  such  matter  so  as  to 
affect  the  validity  of  its  claims  against  the  company."  ^ 

§  145.  Cashier's  acts  away  from  bank. 

A  cashier  may  draAv  checks  AA'hilc  away  from  the  bank;  and 
may  also  indorse  paper  Avhile  away  from  the  bank.^ 

He  may  also  pay  or  certify  checks  away  from  the  bank.^^ 

nspickard  r.  Scars.  133  Ens:.  Com.  40  Bissell   r.  First  National  Bank 

Law  Rep.  409;  DaviB  r.  Handy.  37  of  Franklin,  G9  Pa.  St.  415. 

X.  H.  r>5;   Merchants'  Bank  r'  Ru-  41  Bullard     v.    Randall,     1    Gray 

dolph  ct  al.,  5  Neb.  .527.  (Mass.)    G05. 

3i>  Madden  v.  Doolev,  92  Fed.  Rep. 
274. 


en.  X.]  Bank;i:xg.  177 

If  the  cashier  can  bind  the  bank  bj  representations  made 
"U'hile  in  the  bank,  he  may,  while  absent,  if  representing  the 
bank  and  npon  the  bank's  business,  bind  it."*" 

§  146.  Limitation  of  power. 

Ordinarily  the  cashier  of  a  bank  has  no  authority  to  discharge 
its  debtors  without  payment,  or  to  bind  the  bank  by  an  agree- 
ment that  a  surety  should  not  be  called  upon  to  pay  a  note  he 
had  signed  or  that  he  would  have  no  further  trouble  from  it.^''* 

Under  section  5136  of  the  Xational  Banking  Act  the  cashier 
of  a  national  bank  has  no  power  to  bind  it  to  pay  the  draft 
of  a  third  person  on  one  of  its  customers,  to  be  drawn  at  a 
future  day,  when  it  expects  to  have  a  deposit  from  him  suffi- 
cient to  cover  it,  and  no  action  lies  against  the  bank  for  its 
refusal  to  pay  such  a  draft.^ 

Where  a  statute  creating  a  banking  corporation  provides  that 
its  affairs  shall  be  managed  by  a  board  of  directors  who  shall 
have  power  to  appoint  and  remove  a  cashier  and  other  em- 
ployees of  the  bank,  the  power  to  discharge  a  surety  on  a  note 
cannot  be  exercised  unless  expressly  delegated  to  him  l\v  the 
directors.^ 

The  cashier  of  a  national  bank  has  not  in  the  absence  of 
special  authority  from  the  board  of  directors  or  a  usage  or  prac- 
tice so  to  do,  power  to  receive  on  behalf  of  the  bank  property 
for  safe  keeping.*'^ 

The  cashier  has  no  authority  by  virtue  of  his  office  to  bind 
the  bank  by  certification  of  his  own  check.  The  certification 
ir.  invalid. ^^ 

In  the  case  of  State  National  Bank  v.  ]Srewton  jSTational  Bank, 
66  Fed.  Rep.  691,  it  is  held  that  a  cashier  of  a  bank  has  no 
implied  authority,  to  bind  the  bank  by  a  pledge  of  its  credit  to 
secure  a  discount  of  his  own  notes  for  the  benefit  of  a  corpora- 
tion in  which  he  was  a  stockholder. 

A  bank  may  become  liable  for  the  cashier's  deceit. 

42  Houghton  i-.  First  National  45  Peoples  Savings  Bank  i".  Hughes, 
Bank  of  Elkhorn,  26  Wis.  663.  1  Mo.  Att.  549. 

43  Coclieclio  Xational  Bank  r.  Has-  40  First  Xational  Bank  of  Lvons 
kell  et  al.,  51  N.  H.  IIG.  r.   Ocean  Xational   Bank,   CO   X.   Y. 

44  Flannigan    et    al    r.    California  278. 

National  Bank  et  al.,  56  Fed.  Rep.  47  Gale   v.    Chase   Xational   Bank, 

959.  104  Fed.  Pveep.  214. 

12 


ITS 


The  Cashier. 


[cii.  X. 


The  cashier  of  a  bank  is  the  proper  officer  to  receive  deposits 
and  to  give  certificates  in  respect  thereto,  which  may  properly 
include  (with  the  consent  of  the  depositor),  a  statement  of  the 
source  from  which  the  deposit  arose;  and  for  a  false  statement 
in  that  respect  made  to  subserve  the  interests  of  the  bank,  the 
latter  is  liable  in  tort  to  one  injured  thereby,  although  the 
cashier  was  not  expressly  authorized  to  make  such  statement 
by  the  board  of  directors.^* 

The  cashier  has  no  power  to  release  a  security  upon  a  note 
given  to  the  bank. 

He  cannot  execute  or  bind  the  bank  by  execution  of  a  mort- 
gage on  the  real  estate  of  the  bank. 

The  bank's  property  cannot  be  mortgaged  only  by  resolution 
directing  the  same,  emanating  from  the  board  of  directors. 

The  cashier  cannot  plead  the  Statute  of  Limitation  to  his 
own  note  due  the  bank,  unless  the  board  of  directors  had 
knowledge  of  the  due  date  of  the  note  and  knew  it  was  unpaid."*^ 

In  the  case  of  First  jSTational  Bank  v.  Ocean  National  Bank, 
60  ]Sr.  Y.  278,  it  is  held  that  a  cashier  of  a  national  bank  has  no 
authority  as  such  to  receive  special  deposits,  and  thus  bind  the 
bank  for  their  safe  keeping.  It  is  also  held  that  a  cashier  can- 
not bind  his  bank  by  any  contract,  express  or  implied,  concern- 
ing the  taking  of  special  deposits  taken  for  the  mere  accommo- 
dation of  the  depositor,  as  such  act  is  not  within  the  authorized 
business  of  the  bank.^'^ 

A  cashier  of  a  bank  has  no  legal  authority  by  virtue  of  his 
position  to  compromise  a  claim  of  the  bank  or  to  execute  a  com- 
position agreement  and  release  therefor.  Such  a  power  is  dis- 
cretionary, calling  oftentimes  for  the  exercise  of  considerable 
reflection  and  a  high  degree  of  judgment.  It  is  strictly  a  sacri- 
fice at  least  of  nominal  property  of  the  bank,  and  is  a  function 
of  the  board  of  directors  and  not  of  an  executive  officer.^^ 


48  Hindman  v.  First  National 
Bank  of  Louisville,  112  FeU.  Rep. 
931. 

40Harrisburg  Bank  r.  Forster,  8 
Watts  (Pa.  St.)    12. 


50  Wiley  v.  First  National  Bank, 
47  Ver.  .546 :  First  National  Bank 
V.  Graham,  79  Pa.  St.   106. 

Bi  Chemical  National  Bank  v.  Koh* 
ner,  58  Howard  Prac.  Rep.  iio7. 


CHAPTER  XI. 


PAYING  AND  RECEIVING  TELLERS 

§  147.  Functions  of  the  paying  teller. 

The  functions  of  the  tellers,  receiving  and  paying,  are  re- 
spectively to  receive  and  pay  out  the  moneys  of  the  bank, 
deposited  or  drawn  out  from  it;  and  as  a  rule  one  cannot  dis- 
charge the  duties  of  the  other. 

The  paying  teller  usually  receives  a  higher  salary  than  any 
other  clerk,  because  the  responsibility  put  on  him  to  senitinize 
signatures  and  to  pay  money  is  peculiar  and  very  great. 

To  his  care  is  committed  the  custody  and  disbursement  of 
the  bank's  funds.  He  must  know  the  signatures  of  the  bank's 
customers,  and  be  ready  to  decide  upon  the  payment  or  refusal 
of  all  checks  whei;  presented.  His  position  is  very  re- 
sponsible. 

_  The  refusal  of  payment,  of  a  genuine  check,  or  the  payment 
of  a  forged  check,  in  either  case  may  be  a  serious  matter.  A 
great  variety  of  checks  are,  during  a  day's  business,  drawn  and 
presented  for  payment,  and  each  one  requires  more  or  less 
examination.  Many  of  them  are  required  to  be  endorsed, 
and  before  passing  his  hands  he  must  see  that  the  proper  en- 
dorsement is  made.  Frequently  checks  are  post-dated,  and 
may  be  presented  for  paymient  before  the  time  fixed  by  the 
drawers.  Sometimes  the  dates  are  altered,  and  the  teller  must 
satisfy  himself  whether  the  alteration  is  material  or  not. 

In  the  payment  of  checks,  the  teller  must  think  of  and 
decide  many  important  things:  First,  is  the  signature  gen- 
uine ?  Second,  is  the  account  of  the  drawer  good  ?  And  third, 
is  the  person  holding  and  presenting  the  check  entitled  to  re- 
ceive the  money  ?     Fourth,  is  the  check  raised  or  altered  ? 

"A  teller,"  says  an  eminent  jurist,  "  is  an  agent  acting  under 
a  special  or  express  authority,  and  not  one  so  appointed  by 
a  principal  that  there  can  arise  any  implication  of  defined 
power.  By  the  nature  of  the  teller's  employment,  his  duties 
are  defined  with   an   approach   to  exactness.     Such   a  one  is 

[179] 


180  Paying  and  Receiving  Tellers.  [cii.  xi. 

sometimes  called  a  special  agent,  tliougli  the  phrase  is  open  to 
objection.  The  principal  holds  ont  to  the  public  as  an  agent 
with  limited  powers,  and  with  such  a  one  third  persons  deal 
peviculo." 

A  teller,  known  to  be  such  by  one  doing  business  with  him, 
cannot  bind  the  bank  by  an  agreement  to  pay  interest  to  a 
depositor  in  excess  of  the  rate  which  the  bank  through  its 
board  of  directors  have  authorized,  and  especially  so  where 
the  rate  of  interest  agreed  to  be  paid  was  entered  as  a  stipula- 
tion in  the  passbook. 

The  teller  has  no  authority  to  make  contracts  for  the  bank, 
and  when  he  attempts  to  do  so,  if  the  party  dealing  with  him 
has  the  knowledge  of  the  fact  that  his  position  in  the  bank  is 
that  of  a  teller,  the  bank  is  not  bound  by  the  contract  where 
the  same  is  outside  of  his  duty  and  authority  to  act.  The 
rule,  however,  is  different  where  persons  dealing  with  him 
and  in  good  faith,  without  notice  of  any  want  of  authority  in 
such  officer,  and  the  act  done  is  in  the  apparent  scope  of  his 
authority,  whether  clothed  with  such  aaithority  or  not,  the 
party  so  dealing  with  him  would  be  protected. 

The  acts  of  a  teller,  if  not  within  his  authority,  may  be 
ratified  like  those  of  other  officers.  Tlie  powers  of  a  teller 
to  act  in  the  absence  of  the  cashier  is  one  of  considerable  im- 
portance. In  Potter  v.  Merchants  Bank,  28  K  Y.  041,  p.  650, 
Justice  Mullin  says :  "  The  cashier  cannot  clothe  him  with 
any  more  of  his  power  than  was  necessary  to  enable  the  latter 
to  carry  on  the  usual  and  ordinary  business  of  the  bank."  In 
that  case  the  teller  "  in  the  absence  of  the  cashier  had  author- 
ity undoubtedly  to  receive  payments  of  notes  and  surrender 
them  to  the  j^erson  entitled,  and,  in  a  word,  to  do  Avhatevcr 
was  necessary  and  proper  to  be  done  in  the  ordinary  course 
of  business."  "  I  do  not  doubt,"  the  court  continued,  "  but 
that  the  teller  had  power  to  transmit  notes  owned  by  the  bank 
or  held  by  it  for  collection  and  payable  in  other  places,  or  at 
other  banks,  to  its  agent  for  that  purpose,  and  as,  in  order  to 
do  so  it  becomes  necessary  to  endoi-se  the  paper  of  the  bank, 
he  had  power  to  make  such  endorsement.  But  ho  had  no 
power  to  pledge  its  securities  unless  they  became  pledged  by 
the  mere  act  of  transmitting  for  collection." 

The  paying  teller's  duties  necessarily  bring  him  in  contact 


cir.  XI.]  Banking.  ISl 

with  the  active  customers  of  the  bank,  and  although  his  book- 
keeping is  simple,  no  item  which  requires  entry  for  his  settling 
book  can  be  omitted. 

The  paying  teller's  duties  principally  are,  as  has  been  stated, 
the  payment  of  checks  presented  by  customers  of  the  bank. 
These  checks  are  usually  on  the  bank  over  which  he  presides 
as  paying  teller.  These  checks,  when  paid,  pass  out  of  his 
hands  to  another  clerk,  to  be  charged  to  the  account  of  the 
dealer.  He  also  cashes  checks  for  the  customers  of  the  bank 
which  are  drawn  upon  other  banks.  These  are  then  sent  to 
another  department  to  be  collected.  After  checks  have  passed 
from  the  hands  of  the  paying  teller  to  other  departments  to 
which  they  belong,  any  attempt  to  get  them  back  by  the  teller 
paying  them  is  regarded  with  suspicion. 

It  is  also  the  duty  of  the  paying  teller,  when  authorized,  to 
certify  checks,  unless  such  authority  is  strictly  delegated  to 
the  cashier.  In  certifying  a  check,  when  it  is  a  part  of  the 
teller's  duty,  he  should  be  provided  with  a  book  of  blank  forms 
with  two  stubs,  both  being  numbered,  which  are  used  in  his 
reports  to  be  made  to  the  general  bookkeeper.  The  certfica- 
tion  of  a  check  is  usually  done  by  using  the  stamp  of  the  bank, 
which  saves  time,  the  teller  signing  his  name  and  date  of  certifi- 
cation. It  is  then  handed  back  to  the  holder.  The  bank  then 
has  obligated  itself  to  pay  the  check;. whether  the  drawer  or 
holder  has  the  money  to  his  credit  in  the  bank  makes  no  differ- 
ence. Certified  checks  should  not  be  issued,  however,  unless 
the  customer  has  the  amount  for  which  they  are  drawn  to  his 
credit.  jSTo  ofiicer  of  the  bank  has  the  authority  to  certify 
credit  to  any  one  unless  authorized  by  the  board  of  directors. 
Certified  checks  covering  an  amount  in  excess  of  the  deposit 
on  credit  in  the  bank  to  the  drawer  of  the  check  is  permitting 
an  overdraft,  and  overdrafts,  being  granted  and  allowed  with- 
out security,  in  case  of  loss  the  officer  allowing  the  same  be- 
comes personally  responsible. 

A  paying  teller's  position  in  a  large  bank  is  a  very  important 
and  responsible  one. 

The  bank  may  have  any  number  of  tellers;  the  volume  of 
business  may  be  so  great  that  many  persons  are  required  to 
perform  this  duty. 

The  first  paying  teller  is  considered  in  rank  for  promotion 


182 


Payia'g  and  Receiving  Tellers. 


[CH.  XI. 


next  to  the  assistant  cashier;  and  receives  from  him  or  tlie 
cashier  instructions  which  he  should,  if  not  inconsistent  with 
special  orders  or  directions  from  the  board  of  directors,  follow 
and  comply  with.  At  the  beginning  of  business  in  the  morn- 
ing he  receives  from  the  cashier  a  certain  amount  of  cash, 
which  he  is  charged  with  and  must  account  for  at  the  end  of 
the  day's  business;  deducting  therefrom  all  checks  or  other 
payments  made  by  him.  The  daily  routine  and  duty  of  the 
teller  begins  a  short  time  before  the  bank's  doors  are  open  for 
business.  He  should  appear  at  the  bank  sufficiently  early  to 
arrange  for  the  duties  of  the  day.  Having  received  from  the 
cashier  the  cash  his  responsibility  of  paying  checks  begins. 
His  duty  in  this  particular  department  is  to  pay  only  such 
checks  as  are  properly  drawn,  dated,  and  signed.  If  he 
honors  a  worthless  or  forged  check,  the  bank  must  bear  the 
loss,  unless  by  reasonable  care  and  ordinary  precaution  it 
«ould  have  been  discovered  and  the  loss  averted,  and  in  such 
a  case  failing  to  use  such  care  he  may  make  himself  personally 
responsible. 

A  paying  teller  may  safely  guard  and  prevent  all  liability 
by  adhering  to  the  well  known  principles  and  rules  relating 
to  and  governing  the  payment  of  checks. 

He  is  supposed  to  know  all  the  customers  of  the  bank,  at 
least  should  be  familitr  with  their  signatures;  not  having  such 
knowledge  and  a  check  is  presented  for  payment  it  becomes 
his  duty  to  satisfy  himself  as  to  the  genuineness  of  the  signa- 
ture, and  if,  being  in  doubt  as  to  the  sufficiency  of  funds  to 
pay  the  same,  he  should  pass  it  to  the  ledger  clerk,  who  will 
inform  him  of  the  status  of  the  customer's  account.  Having 
satisfied  himself  fully  ui:)on  all  these  points  he  can  safely  pay 
the  same ;  failing  to  perform  this  ordinary  duty  and  care,  if 
loss  occurs  to  the  bank  the  teller  may  be  held  personally  respon- 
sible as  it  is  his  duty  to  use  reasonable  care. 

The  paying  teller  cannot  be  held  personally  responsible  for 
losses  occurring  when  he  uses  such  care  as  one  in  his  position 
is  expected  to  use  and  does  use.  He  cannot  be  held  for  pay- 
ing a  raised  check  which  by  ordinary  care,  careful  scrutiny, 
and  inspecion  could  not  be  discovered;  but  if  there  are  any 
indications  which  might  be  discovered  on  the  face  of  the  check 
by  an  ordinary  person  that  it  has  been  raised,  or  that  the 


CH.  XI.]  Banking.  183 

check  is  not  genuine,  or  lacks  anv  of  the  legal  requirements 
to  make  it  good ;  for  example,  if  it  is  not  dated,  or  is  a  post- 
dated check,  or  is  not  properly  indorsed  when  an  indorsement 
is  required,  or  the  amount  of  the  check  is  not  legibly  written, 
or  lacks  the  proper  signature  to  charge  the  drawer's  account : 
he  may  be  held  personally  responsible  to  the  bank ;  but  he  may 
pay  a  counterfeit  or  forged  check  or  a  raised  draft  and,  where 
he  uses  reasonable  skill  and  such  ordinary  care  and  precaution 
as  may  be  expected  and  required  of  a  person  occupying  the 
position,  he  cannot  be  held  liable. 

It  is  also  the  duty  of  the  paying  teller,  after  the  exchanges 
have  been  made  at  the  clearing  house,  to  examine  carefully 
each  check  coming  through  the  same  before  charging  the  same 
to  the  drawers  account.  If  any  are  found  to  be  irregular,  or 
forged,  it  becomes  his  duty  to  immediately  notify  the  manager 
of  the  clearing  house  and  give  notice  also  to  the  bank  from 
which  they  were  received;  failing  to  perform  this  duty  in  due 
time  the  bank  may  be  held  responsible  for  any  loss  which  may 
occur. 

It  also  becomes  his  duty,  in  the  absence  of  the  cashier  and 
when  authorized  so  to  do,  to  certify  checks  when  required 
and  presented  for  that  purpose.  Before  binding  the  bank  by 
such  certification  it  becomes  his  duty  to  examine  the  account 
of  the  drawer,  and  ascertain  that  he  has  sufficient  funds  de- 
posited with  the  bank  to  pay  the  same.  Having  ascertained 
this  fact,  and  being  clothed  with  the  power,  he  will  not  hesitate 
to  place  the  certificate  on  the  check.  This  is  ordinarily  done, 
as  previously  explained,  by  WT-iting  or  stamping  upon  the  face 
of  the  check  the  words  "  certified  good  "  or  the  word  ''  good." 
The  certification  should  be  dated  and  then  signed  by  him  in 
his  official  capacity.  Having  certified  the  check,  he  then  by 
a  memorandum  check  charges  the  same  to  the  customer's  ac- 
count; and  the  amount  is  charged  against  the  bank  and  placed 
to  an  account  called  "  certified  check  account."  The  bank 
then  becomes  a  debtor  and  must  pay  the  same  to  any  lawful 
holder  who  may  afterward  present  the  same. 

In  certifying  a  check  it  is  held  that  he  has  no  inherent  or 
implied  authority  to  do  so,  and  cannot  perform  this  act  unless 
authorized,  and  unless  the  drawer  has  the  money  to  his  credit 
in  the  bank  at  the  time  of  certification.     If  he  allows  an  over- 


184:  Paying  axd  Receiving  Tellers.  [en.  sl 

draft  by  paying  or  certifying  a  check,  having  no  special  direc- 
tions or  authority  to  do  so,  he  makes  himself  personally  liable. 

He  has  no  authority  or  latitude  upon  this  subject;  his  duty 
is  plain  to  pay  checks  only  when  properly  drawn  and  the  drawer 
has  the  money  in  bank  to  meet  the  same.  Latitude  is  often 
taken  and  responsibility  assumed,  but  unless  he  has  been  di- 
rected or  authorized  by  proper  and  superior  authority  he  has 
no  right  to  grant  a  credit  by  paying  checks  or  certification 
thereof  when  the  maker  has  no  money  on  deposit  to  meet  them. 

The  overpayment  of  a  check  creates  an  overdraft  which, 
though  authorized  and  permitted  in  many  State  banks,  is 
allowing  credit  to  persons  without  an  expressed  promise  to  pay, 
and  such  overdrafts  thereby  become  doubtful  loans;  and  the 
bank  has  no  authority  to  advance  money  upon  a  verbal  promise 
to  repay  the  same;  and  an  officer  is  restricted  in  liis  authority 
to  make  loans  upon  a  written  agreement  to  repay  unless  duly 
authorized  by  the  board  of  directors. 

Where  a  teller  certifies  a  check  or  gives  credit  to  a  customer 
by  permitting  him  to  overdraw  his  account;  and  such  latitude 
has  been  frequently  practiced  and  sanctioned  by  the  board  of 
directors,  this  degree  of  latitude  may  release  him  from  personal 
liability. 

He  may  also  be  released  from  liability  by  the  ratification  of 
his  acts  by  the  board  of  directors ;  but  the  rule  is  that  he  has  no 
inherent  authority  to  bind  the  bank  by  any  act  outside  of  his 
defined  duty  or  authority  granted  to  him,  and  failing  to  secure 
such  authority  his  acts  are  unlawful. 

In  the  payment  of  indorsed  checks  care  should  be  used,  and 
before  pavment  the  teller  should  require  the  holder  and  in- 
dorser  if  not  personally  loiovni  to  him  to  identify  himself.  This 
is  done  by  the  holder  of  the  check  calling  into  the  bank  some 
person  personally  known  to  the  teller,  who  is  required  to  iden- 
tify the  indorser  as  the  person  entitled  to  payment.  This  may 
be  a  verbal  identification  or  it  may  be  an  indorsement  of  the 
check  by  the  person  himself.  Such  an  indorsement  may  be  a 
restrictive  one,  not  a  guaranty  of  payment  but  one  of  identifica- 
tion only. 

H  a  check  indorsed  comes  to  the  bank  through  the  clearing 
house,  the  bank  receiving  payment  of  the  sarae  is  held  liable 
upon  its  indorsement. 


ciT.  XI.]  Ba:vking.  185 

The  teller  should  also  before  honoring  a  check  satisfy  him- 
self that  there  is  no  revocation  not  to  pay,  previously  entered 
with  the  bank  by  the  maker.  The  bank  should  always  require, 
that  the  notice  of  revocation  should  be  in  writing,  signed  by  the 
maker.  While  a  verbal  notice  may  be  held  to  be  good,  the 
authority  may  be  questioned  and  in  such  a  case  it  must  be 
proven  that  notice  was  duly  given.  A  verbal  notice  frequently 
causes  litigation;  and  the  rule  should  be  that  all  such  notices, 
to  be  binding  upon  the  parties,  should  be  reduced  to  writing 
and  signed  by  the  party  revoking  the  payment  of  the  check. 

A  teller  paying  a  check  where  notice  is  on  file  not  to  pay 
the  same,  will  be  held  personally  responsible  (if  liable  at  all) 
to  the  maker  for  such  negligence;  as  it  is  his  duty  to  ascertain 
whether  any  such  notice  of  revocation  has  been  filed,  but  if 
no  notice  has  been  filed  with  the  bank,  a  verbal  notice  to  some 
officer  of  the  bank  which  has  not  been  conveyed  to  the  teller 
cannot  bind  him. 

At  the  close  of  the  day's  business  it  is  the  duty  of  the  teller 
to  make  "proof"  of  the  day's  transactions;  his  cash  on  hand, 
adding  all  checks  paid,  must  agree  with  the  cash  received  from 
the  cashier  at  the  beginning  of  business  of  that  day. 

Having  discussed  in  a  general  w^ay  the  qualifications  and 
office  of  the  paying  teller  his  duties  as  defined  by  law  are 
presented. 

§  148.  Teller's  duties. 

It  may  be  said  that  the  courts  generally  have  denied  that 
the  teller  by  virtue  of  his  office  has  any  inherent  power.  They 
lay  down  the  rule  to  be  that  through  a  course  of  dealing,  and 
by  usage  and  custom,  he  may  have  (without  being  specially 
delegated  to  perform  certain  duties)  the  implied  power  to 
represent,  and  thereby  bind  the  bank. 

If  it  is  the  usage  of  the  bank  to  recognize  the  acts  of  the 
teller  of  the  bank  is  held  liable. 

The  teller  by  prior  course  of  dealing  may  have  implied 
power  to  bind  the  bank  by  certifying  a  check.-^ 

"Where  the  teller  is  authorized  by  the  bank  to  certify  checks 
it  is  bound  by  his  certification,  and  his  authority  may  be  shown 

1  Security  Bank  r.  The  Xationa)  Bank,  69  Am.  Dec.  67S;  Meads  r. 
Bank  of  the  Republic,  23  Am.  Rep.  The  Mercliant's  Bank  of  Albany,  25 
129;    Farmer's    Bank    r.    Butcher's       >?■.  Y.  143. 


ISG  Paying  and  Receiving  Tellers.  [cii.  xi. 

by  proof  of  his  custom  to  do  so  which  has  been  recognized 
by  the  bank.^ 

The  duties  of  a  teller,  however,  are  usually  those  which  are 
delegated  to  him  either  directly  by  the  board  of  directors  or 
by  the  president  or  cashier  of  the  bank. 

If  his  duties  are  specifically  defined  by  the  board  of  directors, 
the  cashier  has  no  authority  to  interfere  with  the  instructions. 
Usually,  however,  he  receives  his  instructions  and  authority 
from  the  cashier.  His  office  is  to  aid  the  cashier  and  perform 
such  clerical  duties  as  may  be  required  of  him.  Therefore  the 
teller  is  the  cashier's  subordinate.  He  is  detailed  to  perform 
a  certain  duty. 

As  his  office  signifies,  being  designated  "Paying  Teller,"  his 
duty  is  to  pay  out  money  for  the  bank,  and  if  specially  delegated 
by  the  board  of  directors  to  perform  this  service  and  this  alone, 
he  has  no  authority  to  receive  on  deposit  money  for  the  bank, 
or  certify  checks;  however,  in  the  absence  of  such  authority 
if  he  does  so  in  violation  of  the  order  of  the  board  of  directors, 
and  those  dealing  with  him  have  no  reason  to  question  his 
authority,  the  bank  will  be  held  liable ;  but  it  is  seldom  that  the 
board  in  the  employment  of  a  teller  specifically  defines  and 
limits  his  power  to  that  alone  of  paying  out  money  for  the 
bank.  The  fact  that  the  paying  teller  is  employed  by  the 
board  of  directors  for  that  purpose,  does  not  estop  the  cashier 
from  paying.  He  has  the  inherent  power  to  perform  this 
function,  and  is  therefore  a  co-ordinate  agent  with  the  'teller  of 
the  bank. 

It  is  possible  for  the  board  of  directors  to  take  away  from 
the  cashier  an  inherent  power.  It  could  withdraw  from  him 
the  power  to  pay  out  the  funds  of  the  bank,  and  delegate  the 
power  alone  to  the  paying  teller;  but  such  a  rule  would  de- 
stroy the  usefulness  of  the  office  of  cashier;  and  such  an  order, 
therefore,  would  greatly  retard  and  injure  the  business  of  the 
bank. 

The  teller  independent  of  direct  instnictions  as  to  his  duty, 
as  stated,  is  under  the  direction  of  the  cashier,  and  while  acting 
under  such  direction  his  acts  become  the  acts  of  the  cashier. 

There  is  a  very  interesting  discussion  of  the  question  as  to 

2  Hill  r.  Trust  Company,  .57  Am.  Pa>p.  189,  108  Pa.  St.  1. 


CH.  XI.]  Baxkixg.  187 

the  power  of  the  paying  teller  to  receive  deposits  where  his 
duty  alone  is  to  pay  deposits.  It  is  held  that  if  he  attempts  to 
act  in  the  capacity  of  receiving  teller,  he  becomes  the  agent  of 
the  depositor  to  turn  over  the  money  to  the  receiving  teller. 

In  the  case  of  Thatcher  v.  The  Bank  of  the  State  of  Xew 
York,  5  Sandf.  121,  the  court  says:  '"A  person  may,  no  doubt, 
become  a  dealer,  by  a  deposit  made  on  the  day  his  draft  or 
note  falls  due,  though  never  before  in  the  bank,  but  his  deposit 
must  be  made  with  the  proper  officer  of  the  institution  and 
wntli  the  requisite  assent  to  his  becoming  such  dealer. 

"  In  this  instance  there  is,  in  the  first  place,  no  pretence  that 
the  cashier,  or  any  officer  of  the  bank  except  the  paying  teller, 
ever  assented  in  any  manner  to  the  plaintiff's  making  a  deposit, 
or  becoming  a  dealer  with  the  bank.  The  first  step  toward 
establishing  a  duty  of  the  bank  toward  the  plaintiff  is  therefore 
wanting. 

"  Let  us  suppose  this  difficulty  obviated,  the  next  step  is  to 
show  a  deposit  properly  made,  that  is,  that  the  money  was 
left  with  an  agent  of  the  bank  authorized  to  receive  it.  The 
person  who  left  the  money  knew  that  the  agent  who  received 
it  was  the  paying  teller,  and  not  the  receiving  teller  of  the 
bank,  and  it  cannot  be  said  he  was  ignorant  of  the  fact  that 
there  were  two  such  officers.  Indeed,  there  was  no  such  idea 
advanced  at  the  trial.  Xow  the  very  names  of  these  two  agents 
indicate  to  every  one  the  proper  and  widely  different  functions 
of  each.  The  one  is  to  pay  out  the  money  of  the  bank;  the 
other  is  to  receive  moneys  for  the  bank.  Dealers  always  pay 
their  money  to  the  receiving  teller.  When  they  draw  money 
from  the  bank  or  their  notes  or  bills  are  presented  made  payable 
at  the  bank,  the  paying  teller  pays  the  amount  to  them,  or 
to  the  holders  of  such  notes  or  bills. 

"But  we  are  not  left  to  the  inference  derived  from  the  names 
of  these  agents.  The  answer  states  that  the  proper  receiving 
officer  of  the  bank  is  the  receiving  teller,  and  that  it  was  not 
within  the  duties  of  the  paying  teller  to  receive  the  money 
left  in  this  instance,  or  to  assume  to  pay  the  plaintiff's  bill 
with  it,  and  that  it  is  not  in  the  usual  course  of  business  to 
deposit  moneys  with  the  paying  teller.  The  reply  does  not 
traverse  the  allegation  as  to  the  receiving  teller  being  the 
proper  receiving  officer  of  the  bank,  but  it  alleges  that  the 


188 


Paying  aisd  Receiving  Tellers. 


[Cll.  XI. 


receirino-  of  monev  by  tlie  paying  teller,  in  the  Lank,  'luring 
bank  honrs,  is  within  the  ordinary  scope  of  the  business  of  the 
paying  teller  and  of  the  bank,  and  that  his  receipt  and  promise 
in  the  instance  before  ns  were  within  his  duties  and  bound  the 
bank. 

"  The  proof  entirely  failed  to  make  out  these  allegations.  It 
was  shown  that  in  several  instances  these  same  parties  had 
left  funds  with  the  paying  teller  in  the  same  way  that  these 
were  left,  but  there  was  no  proof  that  it  was  his  proper  func- 
tion to  receive  them,  or  that  it  was  in  the  usual  course  of 
business  for  hint  to  receive  funds  in  behalf  of  the  banlc.  On 
the  contrary,  both  the  cashier  and  paying  teller  clearly  prove 
that  it  is  no  part  of  his  duty  or  business  to  receive  moneys  for 
the  bank;  and  the  teller  testifies  that  when  he  does  receive 
money  for  parties  who  do  not  keep  an  account  in  the  bank, 
in  order  to  pay  notes  they  have  drawm  payable  there,  it  is  as  a 
favor  to  such  parties;  he  sometimes  refuses,  sometimes  when 
pressed  very  hard  he  takes  it  for  them,  and  he  then  keeps  it 
separate  from  the  money  of  the  bank, 

''  It  is  true  the  cashier  appears  to  have  known  in  a  few  in- 
stances that  the  paying  teller  thus  received  money  to  pay  notes 
and  bills,  and  did  not  forbid  it;  but  we  cannot  infer  from  this 
an  assent  of  the  bank  that  he  should,  in  their  behalf ^  receive 
money  for  that  purpose.  His  duties  as  their  agent  were  clearly 
defined,  and  the  cashier's  knowledge  that  he  occasionally  while 
in  the  bank  acted  for  others  does  not  show  that  the  bank 
adopted  those  acts. 

"  So  far  from  the  proof  showing  that,  in  this  transaction,  the 
paying  teller  was  the  agent  of  the  bank,  it  clearly  shows  that 
he  w^as  the  agent  of  the  party  who  left  the  money.  The  bank 
had  nothing  to  do  with  the  affair,  nor  was  it  intended  that  it 
should  have." 

The  view  of  the  court  in  the  above  case  is  that  the  teller's 
office  is  a  very  narrow  one;  and  where  his  duties  are  confined 
to  that  of  paying  out  money  he  cannot  perform  any  other 
service  for  the  bank,  such  as  receiving  a  deposit.  If  he  does 
so  he  becomes  the  agent  of  the  depositor. 

lliis  Rule  may  hold  good,  where  it  is  clearly  slioivn  llinl  (he 
person  dealing  until  Mm  had  the  Jcnowledge  that  his  duties  vjere 
limited  to  the  payment  of  money  for  the  hank,  and  that  only. 


en.  XI.]  EA:^'KI]s^G.  189 

In  the  absence  of  the  cashier  the  paying  teller  does  not 
succeed  to  his  powers.  It  would  be  necessary,  therefore,  in 
the  absence  of  the  cashier  for  the  board  of  directors  to  delegate 
to  him  such  powers  as  they  might  wish  him  to  perform. 

The  cashier  may  direct  him,  the  teller,  to  perform  certain 
duties,  but  he  cannot  absent  himself  from  the  bank  and  its 
responsibility  and  delegate  his  authority  to  the  teller. 

The  cashier  may  delegate  to  him  authority  to  make  remit- 
tances for  the  bank  and  to  pay  its  lawful  debts;  but  he  cannot 
authorize  him  to  perform  acts  which  are  clearly  and  exclusively 
those  inherent  in  his  office. 

The  cashier  of  a  bank  has  the  power  to  transmit  a  promissory 
note  to  another  bank  for  discount  and  collection,  and  to  trans- 
fer the  title  thereto  to  the  latter  bank;  but  a  mere  clerk,  acting 
as  cashier  in  the  absence  of  that  officer,  has  no  authority  to 
transfer  any  of  the  notes  or  securities  of  the  bank,  unless  such 
authority  has  been  given  to  him  by  the  directors. 

It  is  held,  however,  that  the  cashier  may  clothe  such  a  clerk 
wdth  ordinary  power  necessary  to  enable  the  latter  to  carry 
on  the  usual  and  ordinary  business  of  the  bank.'"* 

§  149.  Teller's  torts. 

A  teller  cannot  bind  the  bank  by  unlawful  and  unauthorized 
acts;  and  in  order  to  charge  the  bank  with  a  violation  of  the 
law  subjecting  it  to  the  penalty  imposed,  it  must  be  shown  that 
the  teller  acted  under  authority  from  the  board  of  directors, 
or  that  his  act  was  subsequently  made  known  to  and  adopted 
by  the  board.'* 

In  a  previous  chapter  the  penalty  imposed  by  section  5209, 
Revised  Statutes  of  the  United  States,  was  discussed  as  it  ap- 
plied to  the  officers  of  a  national  bank.  It  was  there  stated 
that  in  order  to  hold  an  officer,  namely,  the  president,  director, 
cashier,  teller,  clerk,  or  any  other  agent,  of  such  an  association 
for  the  violation  of  any  of  the  provisions  of  said  section  of 
the  law,  it  must  be  shown  that  the  act  was  "willfully'' 
committed.^ 

3  Potter  V.  Merchants  Bank,  28  5  United  States  v.  Britton,  107 
N.  Y.  641.                                                       U.  S.  655. 

4  Clark    r.    Metropolitan   Bank,   3 
Duer,  241. 


190  Paying  and  Keceiving  Tellers.  [cii.  xi. 

§  150.  Receiving  teller. 

The  receiving  teller's  position  is  one  of  peculiar  responsi- 
bility, requiring-  great  skill,  accuracy,  and  caution.  He  is  the 
hank's  agent  to  receive  money  (of  which  there  are  ten  dififerent 
kinds  in  circulation  in  the  United  States)  from  those  wishing 
to  make  deposits  in  the  bank.  His  position  places  him  in 
close  relationship  with  all  customers  and  persons  who  may 
make  deposits  with  the  bank.  His  office,  therefore,  and  the 
duties  arising  therefrom,  require  that  it  should  be  filled  by  a 
person  adapted  to  the  business  which  necessarily  is  to  be  per- 
formed. 

The  bank  imposes  great  confidence  in  the  receiving  tellers's 
judgniient  and  skill  to  protect  it  from  bogus  and  spurious 
checks,  bank  notes,  and  coins  which  may  be  presented  for 
deposit  and  credit.  H  he  lacks  the  judgment  and  skill  re- 
quired as  an  expert  to  detect  counterfeit  notes,  coins,  and 
forged  signatures,  he  is  not  a  suitable  person  to  occupy  the 
position  of  receiving  teller ;  for  through  his  hands  the  bank 
receives  its  deposits  and  is  held  responsible  to  its  customers 
and  depositors  to  repay  to  them  upon  demand  lawful  money. 
Therefore,  it  is  his  duty  when  receiving  a  deposit,  before  en- 
tering the  same  on  the  book  of  the  depositor,  and  giving  credit 
therefor,  to  make  a  careful  examination  of  all  the  money, 
checks,  notes,  and  bills  that  are  offered  for  deposit. 

It  is  his  duty  to  protect  the  bank  and  not  receive  or  give 
credit  to  a  depositor  for  money,  checks,  or  drafts  which  may 
be  counterfeits  or  spurious.  He  should  make  a  careful  ex- 
amination of  each  coin,  bank  note,  check,  draft,  or  other  in- 
strument offered  for  deposit,  and  before  acceptance,  if  in  doubt 
as  to  their  genuineness,  apply  the  test  known  to  experts.  For 
example,  if  coins  are  presented,  which  may  consist  of  gold  and 
silver,  coined  by  the  mints  of  the  United  States,  or  any  other 
country,  he  should  know  their  value ;  and  ascertain  before 
accepting  the  same,  that  they  are  genuine,  and  contain  the 
standard  weight  fixed  by  the  government  coining  such  money. 

The  test  adopted  by  the  United  States  mint  to  detect  counter- 
feit gold  and  silver  is  as  follo^^'S: 

!N^itrate  of  silver  (crystals) 24  grains. 

Pure  nitric  acid 1.5  drops. 

Distilled  water   ;  .        1  oz. 


cir.  XI.]  Banking.  191 

A  drop  of  this  liquid  on  counterfeit  gold  or  silver,  immedi- 
ately turns  black ;  while  if  applied  on  the  genuine  coin  it  will 
remain  clear. 

If  the  teller,  after  applying  this  test  and  finding  them  to  be 
genuine,  is  in  doubt  about  the  coins  containing  the  standard 
weight,  the  bank  should  be  equipped  with  scales  sufficiently 
accurate  to  test  their  weight.  It  frequently  happens  that  coins 
which  are  genuine  are  light  and  do  not  contain  the  standard 
weight  fixed  by  the  Government.  If  they  are  found  to  be  be- 
low the  standard  required,  the  Government  will  deduct  from 
the  value  the  amount  necessary  to  reinstate  the  loss. 

A  gold  coin  in  the  ordinary  use  of  the  same,  say  a  double 
eagle,  will  maintain  its  standard  weight  for  over  fifty  years. 
It  may  be  reduced  in  weight  by  being  put  through  various 
processes,  that  of  "  rubbing  "  or  what  is  called  "  sweating." 

If  the  teller  finds  the  coins  light  (perceptibly  so),  he  should 
deduct  the  amount  from  the  value  of  the  coin.  If  the  owner 
objects  to  this,  the  coin  should  be  refused.  If  the  bank  ac- 
cepts the  coin  which  it  knows  to  be  below  the  standard  weight 
at  a  discount  found  to  be  correct  by  w^eighing  the  same,  it 
becomes  the  duty  of  the  bank  to  transmit  the  same  at  once  to 
the  Treasury  Department  at  Washington.  On  receipt  of  the 
coin  it  is  tested  as  to  its  genuineness  and  weight,  and  if  found 
to  be  below  the  standard,  it  is  immediately  turned  into  the 
mint  and  again  recoined. 

If  the  bank  accepts  coin  which  it  knows  to  be  below  the 
standard  of  value,  in  the  acceptance  of  it,  having  discounted 
it,  and  charging  the  amount  of  loss  to  the  owner  from  its 
standard  value,  and  again  puts  the  same  into  circulation,  pass- 
ing it  as  of  correct  standard  weight,  and  for  its  face  value,  it 
is  subject  to  punishment. 

It  is  the  duty  of  the  receiving  teller  to  examine  all  national 
bank  notes.  United  States  notes,  currency  certificates,  or  treas- 
ury notes  that  may  be  offered  for  deposit,  and  before  accepting 
the  same  satisfy  himself  as  to  their  genuineness. 

To  become  an  expert  for  this  purpose  it  requires  considerable 
practice  and  study,  and  for  the  benefit  of  those  who  occupy 
the  important  position  of  receiving  teller,  the  following  in- 
structions and  specific  tests  are  given. 

The  Government  of  the  United  States  has  expended  a  very 


192 


Paying  and  Receiving  Tellers. 


[CH.  XI. 


large  sum  of  money  for  complicated  mechanism  embracing 
geometric  lathes,  hjdraulic  presses,  ruling,  and  transfer  en- 
gines, patent  paper,  secret  inks,  electrical  test,  all  of  which  are 
used  in  the  manufacture  and  printing  of  our  money ;  by  the 
use  of  -which  the  Government  of  the  United  States,  by  au- 
thority of  law,  give  us  the  handsomest  paper  money  in  the 
world ;  at  the  same  time  making  it  (by  the  use  of  such  fine  and 
costly  complicated  mechanism,  consisting  as  stated  of  such 
delicate  and  perfect  machinery,  etc.)  impregnable  against  the 
skill  of  the  counterfeiter. 


The  Tests. 

The  paper  used  by  the  Government  for  the  body  of  the  note 
is  composed  of  material  known  only  to  the  Government.  This 
is  true  also  of  all  its  inks  and  coloring  fluids  used  on  the  paper. 

The  body  of  the  paper  is  manufactured  from  the  finest 
quality  of  silk  and  linen.  This  is  rolled  in  layers  crossing  and 
recrossing  each  other,  which  give  it  great  strength  and  durabil- 
ity. In  the  body  and  on  the  surface  of  all  genuine  paper 
money  is  the  "localized  fibre,"  which  is  a  mixture  of  jute,  a 
species  of  sea-weed  and  clippings  of  colored  silk  thread.  This 
fiber  may  be  seen  in  the  paper  and  can  be  picked  from  the 
surface  with  a  sharp-pointed  instrument. 

The  genuine  bank-note  paper  is  a  clear  milky  white. 

The  counterfeit  imitation  of  the  fibre  are  printed  scratches 
of  ink  appearing  on  the  surface  of  the  paper,  and  by  the  use 
of  a  sharp  instrument  can  be  easily  detected  as  such.  What 
is  known  as  the  localized  tint  appears  in  a  blue  tinted  parallel 
strip  crossing  the  face  or  back  of  the  genuine  note  and  has 
not  as  yet  been  successfully  imitated. 

The  expert  desiring  to  make  himself  proficient  should  take 
a  new  bank  note  and  inspect  it  very  carefully.  In  doing  so 
he  will  discover  that  it  is  manufactured  from  the  most  costly 
quality  of  silk  and  linen,  which  is  seldom  used  in  a  counterfeit. 

The  Bank  of  England,  it  is  claimed  by  experts,  manufactures 
the  best  bank-note  paper  in  the  world.  Its  strength  is  so  great 
that  a  five-pound  note  twisted  into  a  rope  or  cord  will  sustain 
a  weight  of  1.50  pounds. 

The  genuine  paper  through  the  sense  of  touch  and  feeling 


en.  XI.]  Bankiis^g.  193 

after  some  practice  becomes  so  familiar  to  experts,  that  tlirougli 
tliis  test  alone  coiinterfeits  are  easily  detected. 

The  touch  test. 

This  test  is  one  which  experts  and  those  experienced  and 
who  .are  accustomed  to  handling  bank  notes  regard  as  one  of 
great  value. 

In  using  this  test,  take  a  genviine  bank  note,  hold  it  firmly 
in  the  hand  and  draw  it  carefully,  but  not  too  swiftly  between 
your  thumb  and  fingers ;  do  not  press  it  so  tightly  as  to  impair 
the  sense  of  touch,  and  you  will  discover  that  the  paper  will 
reveal  a  rough  parchment  feel,  the  interior  will  be  oily,  tough, 
elastic  and  silky. 

The  sense  of  touch  is  one  when  practiced  becomes  very  ac- 
curate. The  genuine  bank  note  possesses  through  its  manu- 
facture and  the  materials  used  in  its  composition  a  something 
which  you  become  familiar  with.  The  counterfeit  bill,  if  tested 
in  the  same  way,  reveals  to  the  touch  a  very  different  sense  of 
feeling.  The  counterfeit  reveals  to  the  touch  a  smooth,  dry, 
and  glassy  surface.  The  paper  seems  to  be  devoid  of  life, 
elasticity,  and  the  sillcy  texture  felt  in  the  genuine.  Tli<3 
counterfeit,  as  it  is  drawn  through  the  fingers,  slips  easily, 
lacking  that  clinging  feel  presented  in  the  genuine.  If  the 
counterfeit  appears  devoid  of  the  glassy  surface,  the  paper 
will  usually  be  inferior,  flimsy,  having  a  spong}^,  pulpy,  and 
shoddy  feel.  The  paper  lacks  the  strength  of  the  genuine, 
being  rotten  and  easily  torn. 

Experts  by  the  use  of  this  touch  test  have  become  so  pro- 
ficient that  they  will,  when  blindfolded,  detect  the  counterfeit 
from  the  genuine  bank  note. 

Geometric  lath-work  test. 

The  endless,  white,  curving  lath  lines  in  the  test  dyes  of  all 
genuine  Government  or  national  bank  notes  are  very  accurate, 
fine,  and  more  delicate  than  a  hair.  They  are  sharp  and 
smooth  on  the  edges  (but  do  not  present  sharp  angles),  and 
are  invariably  the  same  size.  These  delicate,  perfect,  and 
beautiful  lines  are  cut  vnth.  the  point  of  a  diamond.  The 
texture  of  this  Avork  varies  quite  materially.  In  some  dyes 
the  net  work  is  shovTi  lieing  twined  together,  while  in  others 
the  work  is  woven  and  interwoven  until  almost  as  fine  and 
13 


19-i  Payixg  axd  Receiving  Tellers.  [cji.  xi. 

close  as  cloth ;  all  lines,  however,  cross  each  other  at  regular 
Intervals,  the  curves  are  perfectly  symmetrical  and  appear  as  if 
struck  with  the  point  of  a  compass.  Xo  defects  can  be  seen  in 
the  lines,  no  breaks  appear,  while  in  the  counterfeit  lath  work, 
which  is  engraved  usually  by  hand  or  imperfect  machinery,  the 
lines  are  not  continuous,  breaks  are  frequently  discovered,  and 
by  close  observation  it  will  be  seen  that  the  lines  at  the  edge 
present  sharp  angles  resembling  fine  saw  teeth.  They  lack 
the  graceful  curves  and  perfect  geommetrical  symmetry  of  the 
genuine. 

The  lines  also  in  the  counterfeit  are  not  equidistant,  they 
are  also  hea^ner  in  some  places  than  others,  neither  are  they 
entirely  straight. 

The  genuine  vignettes. 

The  genuine  vignettes  appearing  on  the  government  notes 
and  bonds  are  exquisitely  finished.  The  engraving  is  very 
expensive.  An  eminent  artist  who  excels  in  this  line,  it  is 
said,  has  received  for  a  single  head  furnished  the  government 
the  sum  of  six  hundred  and  fifty  thousand  dollars  ($650,000). 

These  pictures  are  lifelike.  They  are  as  perfect  as  skill 
and  talent  can  make.  In  observing  the  eyes  you  can  perceive 
that  they  are  expressive,  clear  and  sharp,  showing  the  white 
very  distinct. 

The  lips  are  shown  to  be  slightly  pouting  and  display 
delicacy.  The  hands  and  feet  being  perfectly  formed ;  observ- ' 
ing  the  forehead,  the  pores  of  the  skin  or  flesh  tints  are  ex- 
posed. The  face,  limbs  and  neck  and  other  portions  of  the 
body  are  represented  by  delicate  dashes  and  dots  set  in  perfect 
semicircular  rows.  On  the  shaded  side  will  be  seen  the 
beautiful  fine  black  lines  crossing  and  recrossing  each  other 
at  accurate  angles  presenting  a  clear  sharp  diamond  work, 
producing  a  symmetrical  beauty  and  relief  apj^earance  to  the 
picture. 

Tlie  backgroimd  of  the  picture,  which  has  gradually 
vanished  and  which  surrounds  it,  is  formed  of  delicate  and 
perfect  squares.  Tlie  drapery  of  the  picture  is  exceedingly 
graceful,  flowing,  and  natural.  The  hair  is  artistically  ar- 
ranged, it  is  devoid  of  coursencss,  it  appears  soft  and  natural. 
The  shades  and  lights  are  so  nearly  perfect  that  the  strands  *j 

V 


cir.  XT.]  Banking.  195 

of  the  hair  can  be  distinctly  seen.  The  whole  picture  shows 
exceedingly  great  skill,  all  the  work  being  wrought  out  and 
blending  together  to  a  perfect  degree  of  harmony  and  per- 
fection. 

Tlie  counterfeit  vig-nettes  present  a  lifeless  appearance.  Tl:!e 
countenance  appears  haggard,  the  eyes  are  blurred,  dull  and 
foggy.  There  is  distinct  demarkation  of  the  black  and  white 
of  the  eye.  The  black  of  the  eye  mingles  with  the  white. 
The  features  are  flat  and  expressionless.  The  mouth  lacks 
the  rounded  pouting  lips.  The  flesh  tints,  showing  so  perfectly 
upon  the  genuine  on  face,  neck,  and  limbs,  upon  the  counter- 
feit show  course  dots.  The  diamond  and  background  of  the 
counterfeit  work  is  blurred.  The  hair  fails  to  show  the  dis- 
tinct strands,  and  appears  coarse  and  altogether  unnatural. 

The  genuine  inls. 

There  are  five  kinds  of  inks  used  in  numbering  the  genuine 
notes,  three  of  red  and  two  of  blue.  There  are  also  two 
shades  of  red  appearing  in  the  seals. 

The  number  at  the  top  of  the  national  bank  note  is  the 
serial  number.  The  number  at  the  bottom  of  the  note  is  the 
serial  number  of  issue  by  the  bank.  The  number  at  the  top 
is  a  very  rich,  bright  carmine  with  clear  cut  edges.  The 
number  at  the  bottom  of  a  note  is  several  shades  darker.  The 
number  at  the  top  and  bottom  of  the  government  notes  ap- 
pear in  the  same  color  and  are  several  shades  darker  than  those 
on  the  national  bank  note;  but  they  appear  with  the  same 
lustrous  surface  and  sharp  cut  edges.  The  seal  on  the  national 
bank  note  is  darker  than  that  on  the  government  note ;  it  is 
a  bright  carmine  with  a  pinkish  tint. 

The  inks  used  are  manufactured  by  secret  process,  the 
chemicals  used  are  unknown  to  counterfeiters;  and  it  is  said 
that  in  no  instance  have  they  been  successfully  counterfeited, 
or  even  imitated.  The  red  ink  number  may  be  obscured  by 
soiling  but  by  touching  it  with  a  damp  sponge  its  color  will 
be  brought  out  perfectly,  while  in  the  counterfeit  the  red 
ink  used  in  the  number  and  seal  presents  a  pale  red  or  dark  log 
wood.  It  lacks  the  lustre,  the  edges  appear  ragged,  while 
the  dampening  with  the  sponge  more  clearly  reveals  its  spuri- 
ousness. 


196  Paying  and  Receiving  Telleks.  [ch.  xi. 

Tlie  genuine  green  ink  used  kas  a  very  rich  grass-green 
hue.  The  color  of  this  ink  is  very  strong  and  will  be  retained 
until  the  note  is  almost  worn  out.  It  will  be  noticed  that 
the  only  distinction  between  the  national  bank  note  and  the 
government  note  is  in  the  shading.  The  government  note  ap- 
pears several  shades  darker  than  the  national.  This  ink  is 
also  made  by  a  secret  chemical  process  known  only  to  the 
government.  The  counterfeit  green  ink  upon  close  investiga- 
tion appears  in  a  variety  of  shades,  dark  green,  pale,  or  pea 
green,  and  lacks  the  lustrous  green  of  the  genuine.  It  is  dull 
and  dead  in  its  appearance. 

The  genuine  black  ink  used  is  almost  a  pure  carbon  and  will 
retain  its  jet  black  and  glossy  appearance  a  great  length  of 
time,  even  on  old  and  worn  notes.  It  appears  remarkably 
fine. 

The  counterfeit  black  ink  lacks  the  gloss.  It  has  a  brownish, 
smokey  aj^pearance  and  is  devoid  of  the  lustre  appearing  in  the 
genuine. 

The  chemical  bath  which  the  bank  and  government  note 
paper  receives  prepares  it  for  receiving  the  ink  impressions 
and  prevents  the  ink  from  spreading,  which  is  frequently 
noticed  on  the  counterfeit. 

The  plate  used  in  making  these  impressions  is  a  work  of  art 
and  very  accurately  cut.  It  is  very  di^cult  for  the  counter- 
feiter to  produce  a  plate  that  even  resembles  the  genuine. 

To  detect  altered  bank  notes  it  is  necessary  to  become  famil- 
iar with  the  genuine  engraving.  Upon  close  observation  a 
striking  contrast  Avill  be  observed  between  the  genuine  portion 
of  the  note  and  that  of  the  counterfeit  substituted. 

In  the  altered  bank  note  the  corners  are  generally  ex- 
tracted and  the  counterfeit  printed  into  their  places.  To 
execute  this  work  it  becomes  very  difficult.  The  extracted 
part  of  the  note  must  leave  the  paper  more  or  less  damaged; 
and  the  printing  taking  the  place  of  the  original  and  generally 
the  miserable  execution  of  the  work  can  be  perceived  at  a 
glance.  In  substituting  the  letters  and  figures  it  is  almost  im'- 
possible  to  retain  the  natural  and  genuine  colors;  and  it  will 
be  observed  that  the  substitution  presents  coui*se  outlines  and 
is  otherwise  imperfect. 


cii.  XI.]  Banking.  197 

Spurluus  signatures. 

The  signatures  upon  all  government  notes  are  engraved, 
while  those  upon  national  bank  notes,  under  section  5182, 
E.  S.  U.  S.,  are  required  to  be  signed.  But  under  the  ruling 
it  is  held  they  niav  be  stamped  upon  the  notes. 

The  same  rule  applies  in  detecting  the  engraved  signature 
and  determining  its  genuineness  as  given  to  detect  other  por- 
tions of  a  note  which  is  engraved.  Tlie  counterfeit  mil  lack 
the  symmetry  and  perfect  shading  and  natural  appearance. 

The  signatures  appearing  on  the  national  bank  notes,  as 
stated,  should  be  sigTied.  They  are  those  of  the  president  or 
vice-president  and  the  cashier  of  the  bank. 

It  is  very  difficult  to  determine  the  genuineness  of  the  writ- 
ten signature  unless  you  have  the  standard  or  genuine  before 
you;  and  have  familiarized  yourself  with  the  characteristics 
of  the  w'riter.  Having  become  thoroughly  familiar  with  the 
genuine  signature  of  the  writer,  it  does  not  become  impos- 
sible to  detect  a  counterfeit;  but  it  is  impossible  that  a  banker 
or  teller  should  have  the  opportunity  to  know  the  signatures 
of  the  signing  officers  to  the  national  bank  notes,  and  there- 
fore it  is  seldom  that  a  counterfeit  national  bank  note  is  dis- 
covered through  this  source. 

There  is  no  known  rule  to  be  guided  by  in  the  detection 
of  a  counterfeit  signature.  It  has  been  demonstrated  beyond 
question  that  the  most  scientific  and  greatest  experts  have  been 
deceived  at  their  own  trade. 

Of  course  the  forgery  of  a  signature  may  be  and  frequently 
is  discovered,  but  this  is  usually  done  where  the  work  is  rough 
and  unskillfully  performed.  ISTo  person  ever  wrote  his  signa- 
ture exactlv  alike  the  second  time.  It  is  a  thing  impossible  to 
do. 

Expert  knowledge  is  very  useful,  especially  in  discovering 
forgeries  of  instruments  such  as  wills.  Where  the  forger 
undertakes  to  imitate  the  hand^Titing  of  a  person  (other 
than  his  signature)  it  becomes  very  difficult,  and  the  forgery 
may  be  comparatively  easy  to  detect;  but  it  is  very  difficult 
to  detect  a  forged  signature  where  skillfully  executed,  there- 
fore the  courts  hold  that  the  bank  can  only  be  held  responsi- 
ble for  such  reasonable  care,  prudence,  and  skill  as  may  be 
required  and  is  expected  of  a  paying  teller. 


198  Paying  and  Receivixg  Tellers.  [ch.  xi. 

The  receiving  teller  mav  not  liave  the  time  to  apply  all 
these  various  tests;  but  if  when  receiving  a  deposit  he  has 
any  doubt  as  to  the  genuineness  of  a  note  or  coin  it  is  his 
duty  to  call  the  attention  of  the  depositor  to  the  fact,  and  if 
upon  examination  it  is  discovered  that  the  coin  or  bill  is  a 
counterfeit,  it  then  becomes  the  duty  of  the  officer  or  receiving 
teller  to  immediately  take  possession  of  such  counterfeit  coin 
or  note,  and  if  a  note  to  stamp  in  plain  letters  upon  the  face 
of  the  same  the  word  '^  counterfeit." 

Section  5  of  the  act  of  Congress  approved  June  30,  1876, 
provides  "  that  all  United  States  officers  charged  with  the  re- 
ceipt or  disbursements  of  public  moneys,  and  all  officers  of 
national  banks,  shall  stamp  or  write  in  plain  letters  the  word 
"  counterfeit,"  "  altered,"  or  ^'  worthless,"  upon  all  fraudu- 
lent notes  issued  in  the  form  of,  and  intended  to  circulate  as 
money  which  shall  be  presented  at  their  places  of  business; 
and  if  such  officers  shall  wrongfully  stamp  any  genuine  note 
of  the  United  States,  or  of  the  national  banks,  they  shall, 
upon  presentation,  redeem  such  notes  at  the  face  value 
thereof." 

There  are  no  provisions  of  law  enacted  by  any  State  direct- 
ing that  officers  of  State  banks  shall  mark  such  notes  as  are 
found  to  be  counterfeit;  but  it  would  clearly  be  the  duty  of 
such  officer  to  do  so. 

Counterfeit  notes  or  coins  when  detected  should  be  re- 
mitted to  the  treasury  department  at  Washington.  After 
receipt  of  same  at  such  office,  and  upon  examination,  if  they 
are  found  to  be  counterfeits,  they  are  returned  to  the  sender 
(canceled)  for  the  purpose  of  enabling  him  to  make  recla- 
mation; and  after  such  use  they  must  be  finally  returned  to 
the  Treasury  Department  and  by  it  transferred  to  the  secret 
service  division  thereof. 

The  teller  must  also  satisfy  himself  that  all  checks  pre- 
sented by  the  depositor  are  regular. 

As  stated  in  a  previous  chapter  the  check  must  be  dated, 
must  be  drawn  on  a  bank,  it  must  call  for  a  certain  sum  of 
money,  payable  either  to  bearer  or  to  order  of  a  person  named, 
and  be  signed  by  the  maker.  Being  satisfied  that  the  check 
is  regular  he  should  require  the  depositor  to  indorse  the  same, 
for  by  such  indorsement  the  bank  i>;  in  possession  of  positive 


cii.  XI.]  Banking.  199 

evidence  of  the  source  of  its  receipt;   and  the  last  endorser 
may  also  be  held  liable  to  the  bank. 

If  the  teller  receives  certified  checks,  being  checks  certified 
by  another  bank,  the  indorsement  of  the  depositor  becomes 
necessary  to  pass  the  title  of  the  check  and  establish  the  fact 
that  he  is  the  bona  fide  holder. 

§  151.  Limitation  of  power. 

The  receiving  teller  has  no  authority  to  make  discounts, 
certify  checks,  or  allow  a  credit  to  a  depositor.  His  duty  is 
confined  to  receiving  money,  and  only  such  documents  as  pass 
for  cash.  He  should  not  open  an  account  with  a  stranger  un- 
til he  has  been  instructed  or  authorized  to  do  so.  This  au- 
thority is  left  with  the  president  or  cashier,  who  may  alone 
determine  who  the  customers  of  the  bank  shall  be. 

§  152.  Rule  as  between  depositor  and  bank  correcting  errors. 

The  receiving  teller  in  receiving  a  deposit  may  fail  to 
give  the  depositor  the  proper  credit  on  his  pass  book.  Errors 
are  likely  to  occur  in  this  way.  The  depositor  failing  to  list 
the  items  of  deposit  on  the  deposit  slip,  which  may  consist  of 
coin,  notes,  checks,  etc.,  the  teller  should  return  the  deposit 
slip  to  him  and  request  him  to  enter  each  item  on  the  deposit 
slip.  Failing  to  do  this  the  teller's  entry  of  the  amount  of 
the  deposit  in  the  absence  of  the  depositor  is  subject  to  cor- 
rection. If  the  depositor  can  show  that  an  error  has  been 
made,  and  he  has  not  received  a  proper  credit,  the  bank  will 
be  held  liable.  But  it  may  be  very  difficult  for  him  to  show 
this.  If  he  has  entrusted  the  money,  checks,  and  drafts,  to- 
gether with  his  pass-book,  with  the  teller  and  leaves  the  bank 
before  the  entry  is  made,  the  teller  may  become  both  his 
agent  and  the  agent  of  the  bank  for  the  purpose  of  making 
the  deposit. 

The  teller  may  require  the  depositor  to  remain  and  verify 
the  amount  to  be  entered  to  his  credit  in  his  pass  book.  But 
where  the  depositor  says,  "  I  am  in  a  hurry,  I  cannot  re- 
main," and  the  teller  enters  the  deposit,  the  bank  may  be  held 
for  an  error  if  any  should  occur.  The  teller  is  not  required 
to  take  the  responsibility  of  listing  the  items  for  the  party  upon 
the  deposit  slip,  and  may  refuse  to  give  credit  to  the  depositor 


200  Paying  and  Receiving  Tellers.  [ck.  xi. 

unless  the  items  have  been  listed  npon  the  deposit  slip  by  the 
depositor  himself. 

The  bank  may  make  any  reasonable  rule  governing  the  re- 
ceiving of  deposits,  and  if  known  to  the  depositor,  and  he  fails 
to  comply  with  it,  the  bank  cannot  be  called  npon  to  correct 
an  error  wdiich  was  the  direct  default  of  the  depositor. 

Where  the  rule  requires  the  depositor  to  verify  the  cor- 
rectness of  the  deposit  in  the  presence  of  the  teller,  and  fail- 
ing to  do  so  he  entrusts  the  counting  of  the  deposit,  and  the 
entry  thereof  in  the  pass  book  to  the  teller,  the  bank  cannot 
be  held  liable.  The  depositor  has  made  the  teller  his  agent 
to  count  the  money  and  make  the  entry.  The  teller,  however, 
may  be  held  liable  to  the  depositor  as  an  agent  in  case  of  loss 
or  false  entry. 

It  is  well  understood  that  the  bank  cannot  make  a  by-law, 
or  establish  a  usage,  which  would  injure  or  deprive  third 
parties  of  their  rights. 

A  by-law  which  may  operate  by  construction  of  the  law  to 
relie^'e  the  bank  of  a  reasonable  duty  or  responsibility,  which 
is  imposed  upon  it  by  the  very  nature  of  its  business  to  perform, 
is  void.  But  a  bank  is  entitled  to  protection  from  suspecting 
and  designing  persons,  and  it  may  enact  a  by-law  which  i.s 
reasonable,  requiring  the  depositor  to  be  present  and  verify 
the  correctness  of  the  amount  of  the  deposit,  before  it  is 
passed  to  the  credit  of  the  depositor. 

If  a  customer  of  a  bank  cannot  be  held  to  reasonable  care 
and  diligence  in  respect  to  his  o^^^l  business,  he  should  not 
ask  the  bank  to  be  held  to  correct  an  error  for  which  he  alone 
is  responsible. 

A  depositor  cannot  walk  into  a  bank  and  hand  to  the  teller 
his  deposit  book  with  money  and  checks  for  deposit,  and  leave 
the  same  with  the  teller  before  the  amount  of  the  deposit  is 
verified,  and  the  entry  is  made,  and  afterward  charge  that 
the  teller  was  in  error,  and  upon  his  testimony  alone  hold  the 
bank  liable. 

The  duties  in  general  of  the  receiving  teller  may  be  de- 
fined and  prescribed  by  the  board  of  directors,  or  by  the  by- 
laws of  the  bank.  In  the  absence  of  such  directions  or  by- 
laws he  is  the  subordinate  of  the  cashier  and  is  subject  to  liis 
direction  and  orders. 


CH.  XI.]  Bankixg.  201 

If  his  duties  are  definitely  prescribed  by  the  board  of  direc- 
tors, he  is  held  aecoiintablc  only  to  them  for  a  failure  in  the 
performance  of  the  same. 

If  he  is  the  subordinate?  of  th€  cashier  and  follows  his 
orders  and  directions  he  cannot  be  held  personally  liable  for 
loss  or  injury  to  the  bank. 

Where  a  teller  is  selected  and  retained  by  the  bank,  to  per- 
form^ the  duties  of  receiAung  teller,  the  cashier  may  also  re- 
ceive moneys  for  deposit,  for  his  duties  are  co-ordinate  ■with 
the  teller  in  this  particular. 

§  153.  An  act  prescribing  punishment  for  mutilating,  uttering, 
or  passing  United  States  coins. 

Be  it  enacted  hy  the  Senate  and  House  of  Representatives 
of  the  United  States  of  A.merica  in  Congress  assembled.  That 
section  fifty-four  hundred  and  fifty-nine  of  the  Revised  Stat- 
utes of  the  United  States  be  amended  so  as  to  read  as  follows: 

''  Sec  5459.  Every  person  who  fraudulently,  by  any  art, 
way,  or  means,  defaces,  mutilates,  impairs,  diminishes,  falsi- 
fies, scales,  or  lightens  or  causes  or  procures  to  he  fraudulently 
defaced,  mutilated,  impaired,  diminished,  falsified,  scaled, 
or  lightened,  or  willingly  aids  or  assists  in  fraudulently  de- 
facing, mutilating,  impairing,  diminishing,  falsifying,  scaling, 
or  lightening  the  gold  or  silver  coins  which  have  been  or  which 
may  hereafter  be,  coined  at  the  mints  of  the  United  States,  or 
any  foreign  gold  or  silver  coins  which  are  by  law  made  cur- 
rent or  are  in  actual  use  or  circulation  as  money  within  the 
United  States,  or  who  passes,  utters,  publishes,  or  sells,  or 
attempts  to  pass,  utter,  publish,  or  sell,  or  bring  into  tlie 
United  States  from  any  foreign  place  knowing  the  same  to  be 
defaced,  mutilated,  impaired,  diminished,  falsified,  scaled,  or 
lightened,  with  intent  to  defraud  any  person  whatsoever,  or  has 
in  his  possession  any  such  defaced,  mutilated,  impaired,  di- 
minished, falsified,  scaled,  or  lightened  coin,  kno^nng  the 
same  to  be  defaced,  mutilated,  impaired,  diminished,  falsified, 
scaled,  or  lightened,  with  intent  to  defraud  any  person  what- 
soever, shall  be  imprisoned  not  more  than  five  years  and 
fined  not  more  than  two  thousand  dollars." 


CHAPTER  XII. 


THE  NOTE  TELLER. 
§  154.  His  duties. 

The  note  teller's  duties  are  to  receive  the  money  for  all 
promissory  notes  liquidated  at  the  bank. 

There  are  two  kinds  of  notes.  The  notes  which  are  dis- 
counted by  the  bank  are  called  "  biMs  discounted  " ;  those  left 
for  collection  are  "'  collection  notes." 

All  the  notes  falling  due  ai-e  placed  in  the  hands  of  the 
teller  on  the  day  of  their  maturity.  The  discounts  are  re- 
ceived from  the  discount  clerk ;  the  total  amount  is  usually 
marked  on  a  slip  of  paper  strapped  around  the  notes.  When 
the  collection  is  made  the  amount  is  credited  to  "  bills  dis- 
counted "  in  the  general  ledger. 

All  other  notes,  falling  due  and  belonging  to  the  bank  on 
the  day  of  maturity,  are  placed  in  the  hands  of  the  note  teller 
by  the  collection  clerk ;  the  amount  of  each  note  is  either 
marked  in  pencil  on  the  note  or  is  sho^^^l  bv  a  ticket  accom- 
panying the  note.  After  the  notes  are  placed  in  his  hands, 
he  is  authorized  to  receive  payment.  All  notes  received  by 
him  which  are  payable  at  other  places  in  the  city  are  sent  out 
by  messenger  for  presentation  and  collection.  When  notes  are 
paid,  certified  checks  or  money  should  be  demanded.  Tlie 
teller  should  be  careful  to  preserve  all  memoranda  of  his 
transactions,  in  the  order  of  their  occurrence,  until  his  cash 
is  proved  at  the  close  of  business  for  the  da  v.  At  the  close 
of  business  he  erases  from  the  cash-book  and  discount  tickler 
such  notes  remaining  unpaid,  and  when  not  othenvise  in- 
structed and  when  protest  is  necessary,  places  them  in  the 
hands  of  a  notary  public  for  that  purpose.  lie  should  de- 
maud  of  the  notary  a  receipt  for  such  notes  as  are  placed  in 
his  haixls.  Wlipu  a  note  is  forwarded  to  a  foreign  ])lace  for 
collection,  the  items  or  notes  are  dulv  entered  in  a  letter  form 
which  shows  each  item  or  transaction ;  from  this  letter  the 
items  and  totals  can  be  taken  and  posted  in  the  note  teller's 
cash-book. 

[202] 


cir.  XII.]  Banking.  203 

The  letter  under  this  svsteni  is  the  original  entry  and  a 
copy  thereof  should  be  taken  and  preserved. 

At  the  close  of  each  day's  business  the  teller  must  account 
for  the  disposition  of  all  notes  received  by  him.  His  tag  or 
memorandum  charging  himself  with  notes  uncollected  and 
which  are  not  in  his  hands  should  not  be  accepted.  He  should 
present  receipts  or  acknowledgments  for  all  notes  and  collec- 
tions when  called  upon  to  do  so. 


CHAPTER  XIII. 


BANK  POWERS  DEFINED. 

§  155.  Statutory  and  expressed  powers. 

Tlie  po'w'ers  given  to  banks  are  those  derived  from  their 
charters  and  the  law  creating  them,  and  the  statute  of  the 
State  under  which  they  operate.  The  statutory  j^owers  are 
called  the  express  powers. 

The  expressed  powers  of  national  banks  arc  the  laws  enacted ' 
by  Congress,  creating  the  right  of  a  banking  corporation  to 
organize  and  to  conduct  the  business  of  banking  and  prescrib- 
ing their  duties  and  powers.  The  express  powers  are  those 
which  directly  authorize  certain  things  appertaining  to  bank- 
ing, and  which  guarantee  the  right  of  the  bank  to  put  them 
into  use  and  force. 

In  law,  an  express  or  statutory  power  is  one  defined  and 
authorized  by  the  legislative  body  of  the  State,  granting  au- 
thority to  do  and  perform  certain  things ;  and  when  authorized 
by  law  to  do  and  perform  an  act  under  such  expressed  or  stat- 
utory provisions,  the  right  to  do  the  same  can  oidy  be  in- 
quired into  by  the  State. 

A  law  may  be  unconstitutional,  but  the  right  to  put  it  into 
force  until  it  is  adjudged  so  by  a  court  of  competent  juris- 
diction, cannot  be  questioned. 

The  expressed  powers  enumerated  in  the  statute,  authoriz- 
ing a  bank,  when  duly  incorporated,  to  do  and  perform  certain 
things,  are  privileges  created  by  law.  The  extent  and  use  of 
these  powers  may  present  questions  requiring  adjudication  by 
the  courts,  but  banking  corporations  may  use  all  the  powers 
granted  to  them  by  the  statute,  and  if  their  acts,  when  per- 
formed, are  within  the  law,  being  lawful,  they  cannot  after- 
ward be  declared  unlawful. 

The  statute  may  grant  a  specific  power  to  a  bank,  and  pro- 
hibit another  privilege,  which  is  not  unlawful  in  itself,  but 
dangerous  if  allowed  to  be  performed  by  a  bank.  This  is 
termed  a  police  power  or  regulation. 

[204] 


cii.  XIII.]  Banking.  205 

A  statute  mar  specify  the  principal  things  which  a  bank 
may  do,  and  prohibit  it  from  doing  certain  other  things  which 
it  might  la-uiiully  do  if  they  were  not  prohibited.  Bnt  the 
Legislature  seldom  undertakes  to  define  all  the  powers  ex- 
pressed, implied,  or  incidental,  belonging  to  the  banking  busi- 
ness, but  usually  contents  itself  by  specifying  the  principal 
privileges  or  powers  wliieh  it  may  exercise. 

The  implied  or  incidental  powers  are  those  not  enumerated 
by  the  Legislature,  but  are  such  as  pertain  to,  and  are  con- 
ferred upon  banking  corporations  by  accepted  and  long-con- 
tinued use  and  custom. 

The  courts  recognize  these  incidental  privileges  and  in- 
herent powers  as  necessary  incidents  in  carrying  on  and  con- 
ducting the  business  of  banking.  While  customs  and  uses  do 
not,  in  every  instance,  signify  that  they  are  fixed  privileges  or 
laws,  a  well-established  custom,  if  reasonable  and  just,  by  de- 
cisions of  the  courts,  may  pass  into  a  fixed  rule  of  law  and 
become  a  recognized  principle  and  privilege. 

The  decisions  of  the  courts  generally  go  to  the  extent  in 
defining  incidental  or  implied  powers ;  "  and  say  that  a  hanJc 
irnay  make  any  contract,  or  establish  any  reasonahle  custom 
aifecting  or  appertaining  to  the  business  of  banl-ing,  and  can 
exercise  the  powers  expressly  enumerated  in  the  statute,  and 
also  such  powers  ivhich  are  properly  incidental  to  the  hus-iness 
of  hanhing  in  conducting  its  affairs/' 

In  the  case  of  Logan  County  x^ational  Bank  v.  Townsend, 
the  Supreme  Court  of  the  L'nited  States  fully  established  thiz 
principle : 

The  court,  in  discussing  the  question,  says :  "  It  is  undoubt- 
edly true,  as  contended  by  the  defendant,  that  the  IsTational 
Banking  Act  is  an  enabling  act  for  all  associations  organized 
under  it,  and  that  a  national  bank  cannot  rightfully  exercise 
any  powers  except  those  expressly  granted  by  that  act,  or  such 
incidental  powers  as  are  necessary  to  carry  on  the  business  of 
banking  for  ivhich  it  was  established." 

A  banking  corporation  has  all  the  powers  expressed  and 
implied  though  not  enumerated  in  its  charter,  which  are  law- 
ful and  authorized  in  the  formation  of  such  a  corporation, 
whether  organized  under  a  general  or  special  law.     It  has  also 


206  Bank  Powers  Defined.  [ch.  xiii. 

all  incidental,  ancillary,  or  implied  power  necessary  to  carry 
on  the  business  of  banking.  It  has  power  by  reason  of  the 
very  nature  of  its  purposes  and  business  to  do>  many  things 
not  specifically  delegated  to  it  by  the  statute. 

The  statute  may  provide  that  it  has  power  to  receive  de- 
posits general,  special,  and  specitic,  and  to  loan  money,  to  buy 
and  sell  exchange,  coin,  and  bullion ;  to  purchase  notes  and 
bills,  and  deal  in  checks ;  to  make  discounts  of  negotiable  paper ; 
to  issue  and  give  certificates  of  deposit,  but  all  of  these  things 
by  right  belong  to  the  business  of  banking  in  the  absence  of 
and  without  specific  power,  delegated  and  prescribed  by  the 
statute,  and  unless  prohibited  by  law,  these  powers  belonging 
to  a  bank  incidentally  and  in  the  very  nature  of  its  purposes 
and  business. 

Tlie  statute  may  provide  that  its  business  shall  be  restricted 
and  controlled,  for  example,  if  a  savings  bank,  that  it  shall  not 
invest  the  money  of  its  depositors  in  mining  stocks,  but  it  has 
all  lawful  powers,  in  the  conduct  of  its  affairs  necessary  to 
carry  on  its  business  which  is  lawful  and  permitted  to  be  per- 
formed by  law;  and  also  all  such  incidental  implied  and  an- 
cillary powers  which  such  corporations  may  enjoy  in  the  trans- 
action of  their  business. 

The  ancillarv^  powers  are  those  giving  to  the  corporation  the 
right  to  sue  and  be  sued ;  to  have  a  corporate  seal ;  to  appoint 
agents  and  elect  officers,  and  to  make  by-laws  for  the  manage- 
ment and  government  of  the  affairs  of  the  corporation. 

In  other  words,  a  bank  may,  unless  restricted  by  the  law, 
perform  any  lawful  act  necessary  to  accomplish  the  purposes  of 
its  creation  that  an  individual  could  do. 


CHAPTER  XIV. 


CONVERTING  STATE  INTO  NATIONAL  BANKS. 

§  156.  Steps  to  be  taken. 

The  Xational  Banking  Act,  section  575-i,  Revised  Statutes 
of  the  United  States,  provides  that  "  a  State  bank  may  be 
converted  into  a  national  bank." 

This  may  be  done  without  reorganization,  and  no  authority 
is  required  from  the  State  in  which  the  bank  is  situated. 

In  the  case  of  Casey  v.  Galli,  9-i  U.  S.  673,  the  court  in 
disposing  of  the  second  plea  filed  by  the  defendant,  which 
alleges  "  that  there  w\qs  not  then,  nor  when  the  plaintiff  was 
appointed  such  supposed  receiver  of  said  Xew  Orleans  Banking 
Association,  nor  before,  nor  since  that  time,  any  such  corpora- 
tion in  existence,  because  the  Ijank  of  Xew  Orleans  had  no 
power  by  its  charter,  nor  authority  otherwise  from  the  State 
of  Louisiana,  to  change  its  organization  to  that  of  a  national 
banking  association  under  the  laws  of  the  United  States,"  says : 

"  The  second  plea  is  clearly  bad.  iSTo  authority  from  the 
State  was  necessary  to  enable  the  bank  to  so  change  its  organ- 
ization. The  option  to  do  that  was  given  by  the  forty-fourth 
section  of  the  Banking  Act  of  Congress.  The  power  there  con- 
ferred was  ample  and  its  validity  cannot  be  doubted.  The  act 
is  silent  as  to  any  assent  or  permission  by  the  State.  It  was 
as  competent  for  Congress  to  authorize  the  transmutation  as 
to  create  such  institutions  originally." 

In  converting  a  State  into  a  national  bank  the  statute  must 
be  strictly  complied  with. 

Section  5154,  Revised  Statutes  of  the  United  States,  pro- 
vides as  follows : 

''Any  bank  incorporated  by  special  law,  or  any  banking 
institution  organized  under  a  general  law  of  any  State,  may 
become  a  national  association  under  this  title  by  the  name 
prescribed  in  its  organization  certificate;  and  in  such  case  the 
articles  of  association  and  the  organization  certificate  may  be 
executed  by  a  majority  of  the  directors  of  the  bank  or  banking 

[207] 


208     Conveetinct  State  Ixto  Xatioxal  Banks,      [cii.  xiv. 

institution;  and  the  certificate  shall  declare  that  the  owners  of 
two-thirds  of  the  capital  stock  have  authorized  the  directors  to 
make  such  certificate^  and  to  change  or  convert  the  bank  or 
banking  institution  into  a  national  association.  A  majority  of 
the  directors,  after  executing  the  articles  of  association  and 
organization  certificate,  shall  have  power  to  execute  all  other 
papers,  and  to  do  whatever  may  be  required  to  make  its  or- 
ganization perfect  and  complete  as  a  national  association.  The 
shares  of  any  such  bank  may  continue  to  be  for  the  same 
amount  each  as  they  were  before  conversion,  and  the  directors 
may  continue  to  be  the  directors  of  the  association  until  others 
are  elected  or  appointed  in  accordance  with  the  provisions  of 
this  chapter;  and  any  State  bank  which  is  a  stockholder  in  any 
other  bank,  by  authority  of  said  laws,  may  continue  to  hold  its 
stock,  although  either  bank,  or  both,  may  be  organized  under 
and  have  accepted  the  provisions  of  this  title.  When  the 
Comptroller  of  the  Currency  has  given  to  such  association  a 
certificate  under  his  hand  and  official  seal,  that  the  provisions 
of  this  title  have  been  complied  with,  and  that  it  is  authorized 
to  commence  the  business  of  banking,  the  association  shall 
have  the  same  powers  and  privileges,  and  shall  be  subject  to  the 
same  duties,  responsibilities,  and  rules,  in  all  respects,  as  are 
prescribed  for  other  associations  originally  organized  as  na- 
tional banking  associations,  and  shall  be  held  and  regarded  as 
such  an  association.  But  no  such  association  shall  have  a  less 
capital  than  the  amount  prescribed  for  associations  organized 
under  this  title." 

§  157.  Incorporated  banks  can  only  be  converted. 

The  bank  to  be  converted  into  a  national  bank  must  exist 
as  a  corporation  under  State  laws.  A  certificate  from  the 
proper  authority  of  the  State,  certifying  that  a  cor]3oration 
had  authority  to  act  as  such  in  a  State  would  be  jyr'ima  facie 
evidence  of  the  fact  that  the  corporation  existed  under  the 
State  law.  Tt  would  folloM^,  therefore,  that  a  private  bank, 
although  permitted  by  authority  of  a  State  to  do  a  banking 
business,  could  not  be  converted  into  a  national  bank. 

The  first  step  required  in  the  process  of  conversion  from  a 
State  into  a  national  bank  is  to  obtain  in  writing  the  consent 
of  at  least  two-thirds  of  the  stock  owned  bv  the  shareholders. 


cir.  XIV.]  Banking.  209 

(By  application  to  the  Comptroller  of  the  Currency  a  proper 
blank  form,  or  authority  for  conversion,  can  be  obtained.) 

When  the  consent  of  two-thirds  of  the  stockholders  is  ob- 
tained, notice  should  then  be  given  to  the  Comptroller  of  the 
Currency  of  the  intention  to  make  the  conversion,  and  the  title 
to  the  bank  should  be  submitted.  Upon  notice  being  received 
by  the  Comptroller,  the  proper  blanks  will  be  furnished  by 
him,  which  consist  of  the  organization  certificate,  which  must 
be  certified  to  by  at  least  two-thirds  of  the  board  of  directors. 
This  certificate  must  set  forth  the  fact  that  the  stockholders 
authorized  the  conversion  of  the  State  bank  into  a  national 
bank.  When  so  executed  it  should  be  certified  to  before  an 
officer,  a  clerk  of  a  court  of  record,  or  a  duly  appointed  notary 
public. 

In  the  case  of  a  conversion- from  a  State  to  a  national  bank, 
the  directors  of  the  State  banking  corporation  hold  their  posi- 
tions as  directors  in  the  national  banking  corporation  until  the 
next  regular  annual  election. 

§  158.  Corporate  relation  to  old  bank  after  reorganization. 

The  Supreme  Court,  in  the  case  of  Metropolitan  Bank  v. 
Claggertt,  141  U.  S.  520,  in  discussing  the  relationship  between 
the  State  bank  converted  into  a  national  bank,  holds  that: 

"  "  *  *  the  conversion  of  the  State  bank  in  the  State 
of  Xew  York,  into  a  national  bank  under  the  act  of  the  Legis- 
lature of  that  State  of  March  9,  1865  (j!^.  Y.  Laws  of  1865, 
chap.  97),  did  not  destroy  its  identity  or  its  corporate  existence, 
nor  discharge  it,  '  the  State  bank,'  as  a  national  bank  from  its 
liability  to  holders  of  its  outstanding  circulation  issued  in 
accordance  with  State  laws." 

The  court  in  further  discussing  this  subject,  says: 

"  The  question  we  are  to  consider  here  is,  did  the  court  err 
in  holding  that  the  plaintiff  in  error  was  not  exonerated  from 
liability  either  by  its  becoming  a  national  bank,  or  by  the  pro- 
ceedings for  the  redemption  and  retirement  of  its  circulating 
bills  issued  whilst  a  State  bank,  which  proceedings,  it  was 
claimed,  were  in  strict  observance  of  every  requirement  of  the 
jSTew  York  statute  of  1859  in  relation  thereto,  or  by  the  statute 
of  limitations  of  the  State  of  New  York?  " 

The  court  decided  that  the  New  York  statute  providing  for 

14: 


210     CoxvERTi^'G  State  Into  Xational  Banks,      [cii.  xiv. 

a  redemption  of  circulating  notes  and  for  releasing  the  bank, 
if  the  notes  were  not  presented  in  six  years,  applied  alone  to 
banks  "closing  the  business  of  banking;"  that  the  change  or 
conversion  of  the  Metropolitan  Bank  into  the  Metropolitan 
National  Bank  did  not  "  close  its  business  of  banking,"  nor 
destroy  its  identity  or  its  corporate  existence,  but  simply  re- 
sulted in  a  continuation  of  the  same  body,  "wdth  the  same  officers 
and  stockholders,  the  same  property,  assets,  and  bank  business 
under  a  changed  jurisdiction;  that  it  remained  one  and  the 
same  bank,  and  went  on  doing  business  uninterruptedly;  and 
tliat,  therefore,  the  statutory  proceedings  relied  upon  in  the 
answer  could  not  operate  as  a  bar  to  the  liability  of  either  bank 
to  pay  the  bills  delivered  by  the  Metropolitan  Bank  in  1861 
to  plaintiifs  intestate. 

The  conversion  is  not  a  termination  of  the  corporate  exist- 
ence of  the  bank,  neither  is  the  change  one  which  will  destroy 
the  liabilities  of  the  bank.  It  is  simply  a  continuation  of  the 
same  body  under  a  changed  jurisdiction.  The  act  of  conver- 
sion does  not  destroy  the  corporate  existence  of  the  bank;  it  is 
only  the  business  or  assets  of  the  bank  which  are  converted 
into  the  new  jurisdiction,  and  when  its  liabilities  are  all  dis- 
posed of  and  paid,  the  bank  is  left  in  possession  of  its  charter, 
and  retains  all  of  its  corporate  rights.  If  so,  it  may  again  go 
into  business  as  a  banking  corporation. 

This  position  is  fully  sustained  by  the  Supreme  Court  in 
the  case  of  Michigan  Insurance  Bank  v.  Eldred,  11:3  U.  S.  293. 
It  is  held  in  this  case  that  "  the  State  bank,  after  conversion 
into  a  national  bank,  does  not  affect  its  identity,  and  that  it 
can  maintain  an  action  under  its  charter  and  in  its  corporate 
name,  and  sue  upon  liabilities  incurred  to  it."  In  this  case 
"  an  action  was  brought  by  the  Michigan  Insurance  Bank,  a 
corporation  created  and  organized  under  the  laws  of  the  State 
of  Michigan,  against  a  citizen  of  "Wisconsin,  upon  a  judgment 
recovered  by  the  plaintiff  against  him  on  May  13,  1862,  in  an 
inferior  court  of  Michigan,  for  the  sum  of  $4,211.56;  in  the 
present  action  the  writ  was  dated  May  11,  1872,  and  appeared 
by  the  marshal's  return  thereon  to  have  been  served  on  J\me 
3,  1882.  The  defendant  originally  pleaded  the  statute  of  limi- 
tations of  ten  years  and  on  that  issue  obtained  a  verdict,  the 
judgment  on  which  was   reversed  by  this  court   at   October 


CH.  XIV.]  Banxixg.  211 

term,  1888,  because  evidence  introduced  by  the  plaintiff  that 
^vithin  ten  years  the  summons  which  had  been  delivered  to  the 
marshal  for  service,  had  not  been  properly  submitted  to  the 
jury.  The  defendant  answering  denied,  upon  information  and 
belief,  that  at  the  time  of  the  commencement  of  the  action  the 
said  plaintiff  was,  or  is  now,  a  corporation  created  or  organized 
under  the  laws  of  the  State  of  Michigan.  In  support  of  the 
other  defense  the  defendant  offered  in  evidence  duly  certified 
copies  of  the  following  documents : 

First.  Articles  of  association. 

"  Second.  The  organization  certificate  executed  at  the  same 
date  as  the  articles  of  association. 

"  Third.  Instruments  signed  by  the  stockholders  conferring 
the  authority  of  the  change  of  the  State  into  a  national  bank. 

"  Fourth.  A  certificate  of  the  Comptroller  of  the  Currency 
that  the  association  had  complied  with  the  provisions  of  law, 
and  was  authorized  to  commence  business." 

The  defense  in  this  case  in  effect,  was  that  the  plaintiff  at 
the  time  of  the  commencement  of  this  action  was  not,  or  is  it 
no'W,  a  coii^oration.  The  court,  in  discussing  this  question, 
says : 

''  The  evidence  offered  by  the  defendant  on  this  point  wholly 
failed  to  support  this  defense,  and  it  must  only  profit  that  the 
plaintiff  sued  by  the  wrong  name.  It  showed  no  more  than, 
that  the  plaintiff  corporation,  having  been  originally  created 
by  the  laws  of  Michigan,  had,  in  accordance  with  the  Xational 
Banking  Act,  become  a  national  bank,  and  its  name  been 
changed  accordingly,  without  affecthig  its  identity  or  its  right 
to  sue  upon  ol>Iigations  or  liabilities  incurred  to  it  by  this 
former  name. 

"  In  the  absence  of  a  statutory  provision  limiting  or  affect- 
ing the  corporation  rights  of  a  State  banking  corporation  after 
conversion  into  a  national  bank,  the  State  bank  does  not  Jose  its 
charter  or  right  to  sue  in  its  original  name;  but  where,  at  the 
time  of  re-organization  the  choses  in  action  or  property  of 
the  State  bank  have  been  assigned  and  transferred  to  the  na- 
tional bank,  the  action  should  properly  be  brought  in  the  name 
of  the  assignee." 

In  the  case  of  Atlantic  Xational  Bank  v.  Xathaniel  Harris, 
118  Mass.  147,  held: 


21;^        CONVEKTING    StATE    InTO    XaTIONAL   BaXKS.        [ciI.  XIV. 

That  "  the  new  bank  could  maintain  an  action  in  its  own 
name  against  the  })resident  for  money  had  and  received  under 
the  statute  of  1870,  chap.  217;  the  fact  of  sale  by  the  State 
bank,  and  purchase  of  the  chose  in  action  by  the  plaintiff  being 
set  forth  in  the  writ." 

§  159.  Liabilities  of  national  bank  after  conversion. 

Upon  the  question  as  to  liability  of  a  national  bank  formed 
by  the  conversion  of  the  State  bank,  for  the  debts  of  the  State 
bank,  the  case  of  Metropolitan  Bank  v.  Clagget,  141  U,  S.  520, 
is  directly  in  point.     It  holds  that: 

"  *  *  *  where  a  national  bank  is  organized  as  the  suc- 
cessor of  a  State  bank  and  takes  over  the  assets  of  the  bank 
and  holds  the  same,  it  is  liable  to  the  depositors  of  the  former 
bank." 

In  the  case  of  The  City  N^ational  Bank  of  Poughkeepsie, 
Bespondent  v.  William  Philps,  'Appellant,  97  iST.  Y.  44,  the 
court  holds  that: 

*'  *  -x-  *  r^  State  bank  transformed  into  a  national  bank 
is  but  the  continuance  of  the  same  body  under  a  changed  juris- 
diction, and  between  it  and  those  who  have  contracted  with 
it,  it  retains  its  identity  and  may,  as  a  national  bank  enforce 
contracts  made  with  it  as  a  State  bank." 

Held  also  that: 

"  *  *  *  where  a  State  bank,  at  the  time  of  its  change  to 
a  national  bank  held  a  continuing  guarantee  of  loans  made 
by  it  to  one  W.,  upon  the  strength  of  which  it  had  made  loans, 
and  after  the  change  further  advances  were  made,  an  action 
was  maintained  by  the  national  bank  upon  the  guarantee  and 
that  the  guarantor  was  liable  for  the  loans  made  both  before 
and  after  the  change." 

Where  a  national  bank  goes  into  liquidation,  closes  its  busi- 
ness, and  ceases  its  organization  as  such  in  conformity  with 
the  act  of  Congress,  in  such  cases  made  and  provided,  and  the 
bank  is  .subsequently  legally  organized  and  incorporated  ac- 
cording to  law,  it  becomes  liable  as  the  successor  of  all  of  the 
property  and  interests  of  the  former  bank  to  depositors  in  said 
bank.-* 

1  Eans,  Administrator,  Pl.Tintiff  in       son  City,  70  Mo.   182;  P.nnk  r.  Mc- 
Error,  i\  Exchange  Bank  of  Joflfer-       Intjre,  40  Ohio  State  528. 


CH,  XIV.]  Banking.  213 

Where  a  national  bank  is  formed  as  the  successor  to  a  State 
bank  and  becomes  possessed  by  assignment  of  the  property  of 
the  State  bank,  owning  and  holding  the  assets  of  parties  liable 
to  the  State  bank  before  its  formation  or  reorganization  into  a 
national  bank,  the  debtors  became  liable  to  the  national  bank, 
and  upon  the  same  theory,  if  it  took  the  assets  of  the  state  bank 
and  can  collect  and  sue  upon  them,  it  becomes  liable  for  all  the 
transactions  legally  entered  into  by  the  State  bank  prior  to  the 
assignment  or  reorganization. 

And  a  national  bank  in  taking  over  the  assets  of  a  State 
bank,  either  by  conversion  or  otherwise,  cannot  take  hy  trans- 
fer or  assignment  and  hold  the  stock  of  the  State  tank. 
National  hanking  corporations  are  prohibited  hy  laio  from 
holding  hy  purchase  directly,  stock  of  another  corporation.  A 
State  bank,  as  formerly  stated,  does  not  lose  its  corporate  ex- 
istence or  its  charter  by  conversion  into  a  national  bank ;  it 
simply  transfers  or  converts  its  assets  into  the  new  corporation 
formed  under  the  [N'ational  Banking  Law. 

A  State  bank  may  transfer  all  of  its  assets  and  property  of 
every  nature,  and  its  surplus  fund,  if  authorized  by  all  of  its 
stockholders,  but  it  cannot  transfer  its  stock  to  a  national  bank. 
Such  an  act  is  an  act  ultra  vires  on  the  part  of  the  National 
Banking  Act,  and,  as  previously  stated,  unless  a  statute  exists 
which  provides  that  the  State  bank's  charter  shall  be  annulled 
or  be  declared  forfeited  to  the  State  within  a  certain  period 
after  conversion,  the  coiporation  (State  bank)  lives  for  the 
full  period  granted  to  it  by  the  provisions  of  its  charter  and 
the  law. 

In  the  case  of  Hayden  v.  Bank  of  Syracuse  et  al.,  15  IST.  Y. 
Supp.  48,  it  is  held  that: 

"  *  *  *  in  accordance  with  the  provisions  of  the  statute 
laws  of  said  State,  chapter  97  of  the  Laws  of  1865,  the  change 
from  a  State  bank  to  *in  association  organized  under  the  Bank- 
ing Laws  of  Congress,  the  action  on  the  part  of  the  State  l:)ank 
under  said  statute  operated  as  a  surrender  of  its  charter  and 
its  existence  as  a  corporation  ceased." 

But,  as  stated,  if  there  are  no  statutory  provisions  terminat- 
ing the  existence  of  the  charter,  its  rights  exist  for  the  re- 
mainder of  tlie  period  granted  to  it  by  law  from  the  date  of 
the  transfer  or  reorganization. 


214  Co^■VEKTI^-G  State  Into  National  Banks,   [ch.  xiv. 

"  The  transition  of  a  State  into  a  national  bank  does  not  dis- 
turb the  rehition  of  either  the  stockholders  or  officers  of  the 
corporation,  nor  does  it  enlarge  or  diminish  the  assets  of  the 
institution.  These  all  remain  the  same  under  the  national  as 
they  were  under  the  State  organization.  The  bank  neither 
loses  any  of  its  assets  nor  escapes  any  of  its  liabilities  by  virtue 
of  the  change." 

It  is  not  a  new  creation,  but  as  a  national  organization,  in 
assuming  the  place  and  position  of  the  State  bank  assumes 
all  of  its  legal  liabilities.  It  is  held  that:  "  Where  certain 
packages  of  coin  were  specifically  deposited  with  the  State 
bank  prior  to  the  change,  that  an  action  in  trover  would  lie 
against  the  national  bank  for  conversion."  ^ 

Where  an  asset  has  been  assigned,  the  assignee  taking  title 
would  be  the  proper  party  plaintiff  in  action,  and  the  coi-pora- 
tion  bank  after  assignment,  could  not  claim  title  or  interest 
in  the  property,  and,  therefore,  would  not  be  a  proper  partv 
plaintiff  under  the  statute.  But  where  the  old  bank  corpora- 
tion has  a  continuing  guarantee  of  loans,  it  is  held,  it  retains  the 
right  to  enforce  the  guarantee.^ 

Assets  which  may  be  transferred  by  a  State  bank  and  con- 
Terted  and  held  by  the  new  national  bank,  are  limited  to  such 
only  as  the  national  bank  may  hold  at  any  time.  All  assets 
prohibited  to  be  held  by  sections  5137  and  5200  of  the  Revised 
Statutes  of  the  United  States  must  be  retained  by  the  old  cor- 
poration. 

SEoniamin    Coffv,    Eospondpnt    r.  3  Xational    Bank    v.    Phelps.    97 

National  Bank  of  the  State  of  Mo.,       N.  Y.  44. 
Appellant,  46  Mo.  140. 


CHAPTER  XV. 


AMENDING  BANK  CHARTERS. 

§  160.  National  bank  charter,  how  amended. 

The  National  Banking  Act  provides  the  steps  to  be  taken 
in  obtaining-  a  charter,  and  when  all  such  proceedings  are  com- 
plied with  and  the  Comptroller  of  the  CuiTency  issues  a  certifi- 
cate of  due  incorporation,  the  charter  become'^  a  contract  and 
is  not  subject  to  amendment,  only  under  such  laws  and  re- 
strictions as  are  imposed  by  the  statute.  A  national  bank  may 
amend  its  charter,  providing  "no  clianqe  shall  he  made  in  the 
articles  of  association  by  which  the  rights,  remedies,  or  security 
of  the  existing  creditor  of  the  association  shall  he  impaired/^ 
The  necessity  of  amending  a  charter  obtained  to  conduct  the 
business  of  banking,  when  obtained  under  the  National  Bank- 
ing Act,  could  hardly  arise.  The  charter  when  obtained  with 
power  to  do  a  general  banking  business  under  said  act  is  com- 
plete. An  amendment  does  not  enlarge  its  power  by  setting- 
out  the  various  statutory  enactments,  and  provisions  in  the 
articles  of  incorporation.  All  such  powers  are  implied  and 
need  not  be  set  out  In  haec  verha;  but  a  national  bank  charter 
w^hicli  has  been  granted,  and  is  defective  as  to  requirements 
of  form  and  law,  may  be  amended  by  application  to  the  Comp- 
troller of  the  Currency. 

§  161.  Amending  State  bank  charter. 

The  laws  of  the  various  States  by  statutory  provisions  pro- 
vide for  the  amendment  of  the  articles  of  incorporation  setting- 
out  the  mode  which  must  be  followed.  But  the  amended 
articles  can,  in  no  instance,  extend  the  life  of  the  corporation 
beyond  the  time  granted  to  it  by  its  original  articles  of  incor- 
poration, and  the  articles  of  incorporation  by  amendment  can- 
not create  a  new  power  or  definite  purpose  from  that  intended 
by  the  original  articles.  For  example,  a  bank  which  is  incor- 
porated as  a  savings  bank  under  a  statute  authorizing  and  pro- 
viding specifically  for  the  incorporation  of  such  banks,  and  in 

[215] 


21G  AMEXDI^■G   Baxk   Chakters.  [ch.  XV. 

conformity  with  such  a  specific  hiw,  cannot  amend  its  articles 
of  incorporation  to  include,  and  give  it  the  power  of  conducting 
a  commercial  banking  business. 

The  Constitutions  of  the  various  States  generally  have  a  pro- 
vision that  no  corporation  shall  engage  in  any  other  business 
other  than  that  expressly  authorized  in  its  charter,  or  the  law 
under  which  it  may  have  been  incoi-porated.^ 

The  National  Banking  Act  expressly  limits  the  exercise  of 
the  powers  delegated  to  national  banks,  and  they  can  only  per- 
form such  delegated  powers  and  powers  incidental  thereto  as 
are  necessary  in  the  conduct  of  their  business.  The  object  and 
purpose  in  so  framing  the  law  was  evidently  to  confine  such 
corporations  to  a  strict  legitimate  banking  business,  to  make 
therfi  safe  in  regard  to  their  circulating  notes,  and  as  places  of 
deposit.  Public  policy,  therefore,  demands  that  banking  cor- 
porations be  held  strictly  within  the  limits  of  the  law  prescrib- 
ing and  authorizing  their  organization,  and  the  same  policy 
holds  good  as  to  State  banking  corporations. 

The  Legislature  of  a  State,  after  a  charter  has  been  once 
obtained  by  due  process  of  law,  has  no  power  to  divest  the 
corporation  of  its  rights,  or  to  amend  the  same,  unless  such 
power  has  been  reserved  in  the  Constitution  of  the  State,  or 
unless  it  has  been  found  that  by  the  operation  of  such  power 
granted  in  the  charter,  the  health,  peace  or  public  interests 
generally,  are  being  seriously  affected  or  destroyed  by  the 
operation  and  power  of  such  corporation.  It  can  hardly  be 
assumed  that  such  a  condition,  or  such  results  could  arise  from, 
the  operation  of  powers  granted  to  a  bank  corporation. 

The  principle  is  established  that  a  charter  Avhen  olitained 
from  the  Legislature  of  a  State  (if  not  obtained  through  fraud), 
or  from  the  general  law,  becomes  one  of  contract  between  the 
parties  and  cannot  be  set  aside  or  impaired. 

The  Constitution  of  the  United  States  provides  that  "  no 
State  shall  *  *  *  pass  any  *  *  *  law  impairing  the 
obligation  of  contracts." 

The  celebrated  case  of  Dartmouth  College  v.  Woodward, 
decided  by  the  Supreme  Court  of  the  United  States,  established 

1  See    Constitution    of    California,       art.   12,  §  7:   Constitution  Pennsyl- 
art.   12,  §  0:   Constitution  Alaliama.        vania..  art.   16,   §  6. 
art.  13,  §  5;  Constitution  Missouri, 


cii.  XV.]  Banking.  217 

it  as  the  law  that  when  the  State  granted  a  charter  to  a  private 
corporation,  it  became  a  contract  and  could  not  be  set  aside 
unless  by  the  consent  of  the  parties  thereto.  It  has  been  held, 
however,  that  the  Legislature  has  the  power  to  modify  at  its 
pleasure,  a  summary  remedy  against  defaulting  stockholders 
givcD  to  a  corporation  by  its  charter." 

The  general  rule  is:  That  the  courts  in  construing  charters, 
construe  them  liberally  when  attacked  collaterally  and  directly 
as  against  the  State.  A  charter  of  a  company  formed  under 
the  General  Corporation  Law  of  a  State  cannot  obtain  any 
j)rivilege  in  violation  of  the  laws  of  the  State.^ 

Articles  of  incorporation  of  State  banks  may  be  amended  in 
conformity  with  the  law  authorizing  such  privileges,  or  power, 
but  the  law  as  stated,  must  be  complied  with  in  all  its  recpiire- 
ments,  as  the  stockholders'  and  creditors'  rights  may  be  af- 
fected, and  every  step  taken  must  be  performed  in  strict  com- 
jjliance  with  the  statute. 

A  banking  corporation  incorporated  under  the  general  law 
of  a  State  to  conduct  a  general  commercial  banking  business, 
cannot  amend  its  articles  giving  it  power  to  conduct  a  savings 
bank  business,  or  a  commercial  and  savings  bank  business  com- 
bined. The  law  permitting  the  corporation  to  amend  its  arti- 
cles will  not  permit  it  to  change  its  entire  purpose.  The 
amendment  cannot  change  the  original  intention  and  purpose 
of  the  corporation.  Its  powers  may  be  enlarged  and  new 
powers  may  be  added  and  grafted  into  the  corporation,  but 
such  powers  must  be  those  appertaining  to  the  original  purpose 
of  the  corporation;  therefore,  as  stated,  a  commercial  bank 
incorporated  as  such,  with  power  to  conduct  a  commercial 
banking  business,  cannot  amend  its  articles  of  incorporation 
authorizing  it  to  conduct  a  savings  bank  business.  This  privi- 
lege is  not  germane  to  the  original  purposes  of  the  corporation ; 
it  is  a  new  power  attempted  to  be  created ;  a  new  right,  and  not 
an  amendment  of  the  original  purpose  or  intentions  or  object 
of  the  corporation. 

A  bank  may  amend  its  articles  of  incorporation,  but  it  can- 
not, by  such  an  amendment,  reduce  its  capital  stock  to  an 
amount  less  than  its  indebtedness.     The  law  permitting  a  cor- 

2  Ex  parte  X.  E.  and  S.  W.  Ala.  3  X^^y  Orleans   National   Banking 

Co.,  37  Ala.  679.  Association  v.  Wiltz,  10  Fed.  330. 


218  Amexdixg   Bank   Ciiaetees.  [ch.  xv. 

poration  to  amend  its  articles  will  not,  at  the  same  time,  permit 
it  to  destroy  them  to  the  injnry  of  its  stockholders  or  creditors. 
The  purpose  of  the  corporation  cannot  be  wholly  changed.  For 
example,  a  bank  which  destroys  its  original  name,  and  incor- 
porates a  new  name  in  place  of  the  old  one,  and  enlarges  its 
capital,  enumerating  other  and  different  powers  from  those 
which  it  had  originally  attained  l\v  law,  is  creating  a  new  right 
and  not  amending  its  former  rights. 

The  statute  of  the  State  of  California,  approved  March  11, 
1903,  providing  for  the  amending  of  articles  or  certificates  of 
incorporation,  j^rovides  that  "  the  articles  may  be  amended  by 
majority  of  vote  of  its  board  of  directors  or  trustees,  and  by 
vote  or  written  consent  of  the  stockholders  representing  at 
least  two-thirds  of  the  subscribed  capital  stock  of  such  cor- 
poration." A  copy  of  the  said  articles  of  association,  or  cer- 
tificate of  incorporation  as  thus  amended,  duly  certified  to  be 
correct  by  the  president  and  secretary  of  the  board  of  directors, 
or  trustees,  of  such  corporation,  must  then  be  filed  in  the  office, 
or  offices,  where  the  original  articles  are  required  to  be  filed. 
At  the  time  of  so  filing  such  amended  articles,  a  corporation 
is  deemed  to  have  the  same  power  as  if  such  amendment  had 
been  embraced  in  the  original  articles  of  incorporation.  A 
defect  in  the  original  articles  of  incorporation  can  be  cured  by 
the  process  of  amendment. 

Where  amendments  to  charters  are  provided  for  by  the 
various  statutes  of  the  States,  the  provisions  for  amendment 
must  be  strictly  followed.  Cook  on  Corporations  (5th  ed.), 
section  499,  declares  that  "  an  amendment  may  be  said  to  be 
auxiliary  and  incidental  when  it  merely  grants  new  powers,  or 
authorizes  new  methods  and  new  plans  for  the  purpose  of  car- 
rying out  the  origiiml  plan  and  effecting  the  real  object  of  thai 
plan)' 

It  is  also  held  that  "  where  an  amendment  changes  the  cor- 
l)orate  plans,  the  question  to  be  determined  is  one  of  law."^ 

4  Winter  )•.  Muscogee  R.  R.,  11  Ga.  438;  Southern  R.  R.  r.  Stevens, 
87  Pa.  St.  190. 


CHAPTER  XVI. 


BANK  EEMOVING  ITS  PLACE  OF  BUSINESS. 

§  162.  National  bank  removing  place  of  business. 

A  national  bank  may,  with  the  consent  of  the  Comptroller 
of  the  Currency,  remove  from  one  place  to  another  within  the 
State,  not  more  than  sixty  miles  distant  from  the  original  place 
of  business  designated  in  its  articles  of  incorporation.  The 
distance  cannot  exceed  the  limit  of  sixty  miles,  and  it  must 
have,  before  remo^'ing,  the  consent  of  the  Comptroller  of  the 
Currency. 

The  Xational  Banking  Act,  amended  March  14,  1900,  pro- 
vides that  "  an  association  may  be  organized  in  a  town  of  three 
thousand  population,  or  less,  with  a  capital  stock  of  twenty-five 
thousand  dollars."  Such  an  institution,  authorized  to  conduct 
business  at  the  place  named,  with  a  population  of,  not  to  exceed 
3,000  inhabitants,  would  certainly  be  prohibited  from  remov- 
ing its  place  of  business  into  a  city  or  town  exceeding  3,000 
inhabitants,  and  where  a  capital  stock  of  a  greater  sum  is  re- 
quired. But  where  a  corporation  which  has  secured  right? 
prior  to  any  such  restriction  enacted  by  law,  and  which  it  could 
enforce  prior  to  such  enactment,  it  could  not  be  estopped  from 
changing  its  location  where  the  statute  authorized  such  a 
primal  ege. 

A  corporation  which  is  required  by  law  to  designate  a  place 
of  business  in  its  articles  of  incorporation,  by  such  designation 
thereby  gives  notice  to  the  world  that  the  place  designated  is 
its  legal  home ;  "  its  domicile  "  is  there,  and  it  then  becomes 
legally  a  citizen  of  the  State. 

§  163.  State  banks  removing  place  of  business. 

It  is  held  in  the  case  of  George  Runyan,  Plaintiff  in  Error, 
V.  The  Lessee  of  John  G.  Coster  and  Thomas  K.  Mercien,  11 
Peters,  122,  that: 

a  *  *  *  ^  corporation  can  have  no  legal  existence  out 
of  a  sovereignty  by  which  it  is  created,  as  it  exists  only  in  con- 

[219] 


220       Bakk  Kemoving  Its  Place  of  Business,      [cii.  xvi. 

tcmplation  of  law  and  by  force  of  law.  It  must  dwell  in  the 
place  of  its  creation  and  cannot  migrate  to  another  sovereignty. 
But,  where  the  statute  of  a  State  provides  that  a  corporation 
may  change  its  particular  place  of  business  from  one  point  to 
another  in  the  same  State,  it  has  such  power." 

It  is  also  held  that  a  corporation  bank  may,  where  no  statu- 
tory law  intervenes,  establish  a  business  in  a  foreign  State  as 
agent  of  the  mother  bank,  but  the  rule  is  well  established  that 
a  foreign  bank  corporation  cannot  have  greater  privileges  in 
the  conducting  of  its  business  in  the  State  than  those  organiz'^d 
within  the  State.  Such  a  law  is  reasonable  and  just.  ISTo  for- 
eign corporation  should  be  allowed  to  transfer  its  franchise  in^'o 
a  foreign  State  without  complying  with  all  the  laws  governing 
corporations  of  such  State. 

A  banking  corporation,  however,  where  the  statute  of  the 
State  so  provides,  may  remove  its  principal  place  of  business 
from  one  place  to  another  in  the  same  county,  or  from  one  ci'y 
or  county  to  another  city  or  county  within  the  State;  but  where 
no  such  provisions  are  provided  for  in  the  law,  a  corporation 
has  no  right  to  remove  its  principal  place  of  business,  but  a 
banking  corporation  may  conduct  business  within  th'c  State  and 
out  of  the  city  through  its  agents  duly  authorized.  Such  busi- 
ness, however,  must  be  that  which  is  given  to  the  corporation 
by  right,  by  organic  law,  and  such  ordinary  business  as  its 
organic  law  gives  it  power  to  do.  For  example,  an  agency  may 
exist  for  the  redemption  of  bills;  an  agent  may  collect  a  note 
payable  out  of  the  State;  a  banking  corporation  may  purchase 
a  note  in  a  foreign  State.  This  is  held  and  construed  "  not 
transacting  business  "  in  the  State. 

It  is  also  held  in  the  case  of  The  President,  Directors  and 
Company,,  of  Bank  of  Utica  v.  Smeeds  &  Canfield,  3  Cow. 
Eep.  662,  that: 

"  *  *  *  a  bank  corporation  may  make  any  contract 
within  the  scope  of  its  general  powers,  and  may  bind  itself  to 
do  an  act  at  any  other  place,  and  whenever  the  engagement 
may  be  broken  the  bank  will  be  equally  liable." 

In  the  case  of  Merchants'  jSTational  Bank  v.  State  Bank,  10 
Wall.  (U.  S.)  604,  the  court,  in  referring  to  the  powers  of  the 
national  banks,  says: 

"Associations  organized  under  the  act  of  Congress  to  carry 


CH.  XVI.]  Banking.  221 

on  the  business  of  banking  are  required  by  the  expressed  words 
of  the  act  to  transact  their  usual  business  at  an  oflSce  or  bank- 
ing house  located  in  the  place  specified  in  their  organization 
certiticate,  and  no  individual  officer  or  party  is  allowed  to  leave 
his  bank  to  go  elsewhere  to  make  large  contracts  without  the 
instructions  of  the  directors.  Unless  his  power  in  that  behalf 
is  limited  to  the  established  place  of  business,  he  may  go 
wherever  he  pleases  for  that  purpose,  and  if  he  certifies  checks 
anywhere  within  the  four  seas  of  our  continent,  the  bank  is 
bound  by  his  contracts.  Stockholders  and  depositors  should 
take  warning  for  such  is  the  law,  as  the  national  banks  are 
liable  at  any  moment  to  be  overwhelmed  Avith  pecuniary  obli- 
gations and  involved  in  utter  ruin." 

A  bank  located  in  one  county  and  having  its  principal 
place  of  business  fixed  by  its  charter  violates  the  same  by 
establishing  an  agency  in  another  county  where  it  receives  de- 
posits, sells  exchange,  and  conducts  a  general  banking  business 
unless  the  statute  authorizes  the  privilege. 

The  court,  in  the  case  of  The  People  ex  rel.  Zephaniah  Piatt, 
Attorney-General,  v.  The  President,  Directors,  etc.,  of  the  Oak- 
land County  Bank,  1  Douglass  (Mich.),  283,  holds  that  "  where, 
under  the  provisions  of  a  charter  which  fixes  the  place  of 
business,  that  the  bank  violates  the  law  if  it  establishes  an 
agency  in  another  county;  "  and  in  discussing  this  question 
the  court  says: 

"  The  last,  and  most  important,  question  remains  to  be  con- 
sidered; and  that  is,  whether  the  establishment  oi  an  agency 
in  the  city  of  Detroit  was  a  violation  of  the  charter  of  the 
defendants.  By  the  act  of  the  incorporation,  the  stockholders 
were  authorized  to  locate  the  bank  in  the  county  of  Oakland. 
It  follows,  therefore,  that,  if  the  corporation  has  undertaken 
to  exercise  any  of  its  franchises  without  that  county,  it  has 
usurped  an  authority  in  violation  of  law,  and  must  suffer  the 
penalty  which  that  law  inflicts.  The  ease  admits  that  the 
bank  redeemed  its  bills,  kept  deposit,  and,  as  incident  to  such 
redemption,  bought  and  sold  exchange  at  the  agency.  Did 
these  acts,  or  either  of  them  separately  considered,  violate  the 
law  which  gave  a  legal  existence  to  the  defendants  ?  To  de- 
termine this  question,  it  is  only  necessary  to  define  what  busi- 
ness this  bank  was  authorized,  by  the  law  of  its  creation,  to  do 


222        Bank  Removing  Its  Place  of  Business,      [ch.  xvi. 

and  perform.  Sucli  an  examination  will  lead  to  the  conelnsion 
that  it  is  a  bank,  not  simply  of  discount,  but  also  of  deposit. 
It  is  quite  manifest  that  the  defendants  could  not  establish  in 
this  citv  an  office  of  discount.  If  so,  may  it  not  clearly  be 
intended  that  they  can  establish  an  office  of  deposit?  To  my 
mind  the  conclusion  is  irresistible." 

In  the  case  of  Kennedy  Southern  Railway  v.  Gebhard,  109 
U.  S.  Rep.  527,  the  court  says:  "A  corporation  may  do  busi- 
ness in  all  places  where  its  charter  allows,  and  the  local  laws 
do  not  forbid."  AVhere  the  statute  of  the  State  provides  that 
an  agency  may  be  established  within  the  State,  such  an  agency 
may  conduct  a  business  for  the  parent  bank.  In  doing  so, 
however,  by  all  of  its  signs  and  advertisements  it  must  indi- 
cate to  the  public  that  it  is  acting  simply  as  an  agency  of  the 
parent  bank.  It  has  no  authority  to  conduct  through  the 
agency  a  general  banking  business.  It  can  do  no  business 
except  in  the  name  of  the  parent  bank.  If  an  agency  could 
be  established  out  of  the  county  by  the  parent  bank  to  do  the 
general  business  of  the  corporation,  it  would  be  unnecessary 
to  require  the  corporation  to  have  a  principal  place  of  business 
named  in  its  articles  of  incorporation. 

AVhere  the  statute  of  a  State  pro^'ides  that  a  corporation 
may  remove  its  place  of  business,  the  proceedings  of  removal 
must  be  strictly  complied  with. 

§  164.  Place  of  business. 

In  the  case  of  Bank  of  Augusta  v.  Earle,  13  Peters,  510, 
Taney,  Chief  Justice,  says: 

"  It  is  very  true  that  a  corporation  can  have  no  legal  ex- 
istence out  of  the  boundaries  of  the  sovereignty  by  which  it  is 
created,  but,  although  it  must  live  and  have  its  being  in  that 
State  only,  yet  it  docs  not  by  any  means  follow  that  its  exist- 
ence there  will  not  be  recognized  in  other  places;  and  its  resi- 
dence in  one  State  creates  no  insuperable  objection  to  its 
power  of  contracting  in  another." 

It  is  broadly  held  by  many  of  the  courts  that  a  corporation 
may  be  organized  in  one  State  and  do  all  of  its  business  in  an- 
other State.  ^ 

1  Missouri  Lead,  etc.,  Co.  v.  Rcinliard,   114  Mo.  218    (1893). 


CH.  XVI.]  Banking.  223 

It  is  also  held  in  the  ease  of  Oakdale  Mfg.  Co.  v.  Grarst,  18 
R.  I.  484,  and  in  the  case  of  The  People  v.  Fidelity,  etc.,  Co., 
153  111.  25  (1894),  that: 

'^  *  *  *  a  corporation  may  be  organized  in  one  State  and 
do  all  of  its  bnsiness  in  another  State,  but,  a  foreign  corpora- 
tion organized  in  a  foreign  State  cannot  enter  another  State 
and  conduct  bnsiness  on  more  favorable  terms  than  corpora- 
tions organized  in  said  State." 


CHAPTER  XVII. 


INCREASING  OR  REDUCING  CAPITAL  STOCK. 

§  165.  Law  governing  national  banks. 

Section  51-i2  Eevised  Statutes  of  the  United  States  provides 
for  the  increase  of  capital  of  a  national  bank  in  the  words 
and  figures  following: 

''Any  association  formed  nnder  this  title  may,  by  its  articles 
of  association,  provide  for  an  increase  of  its  capital  from  time 
to  time,  as  may  be  deemed  expedient,  subject  to  the  limita- 
tions of  this  title.  But  the  maximum  of  such  increase  to  be 
provided  in  the  articles  of  association  shall  be  determined  by 
the  Comptroller  of  the  Currency." 

Section  1  of  the  act  of  May  1,  1886,  provides  that: 

a  *  *  *  j^j-^y  national  banking  association  may,  with  the 
approval  of  the  Comptroller  of  the  Currency  and  by  the  vote 
of  shareholders  owning  two-thirds  of  the  stock  of  such  asso- 
ciation, increase  its  capital  stock,  in  accordance  with  existing 
laws,  to  any  sum  provided  by  the  said  Comptroller,  notwith- 
standing the  limit  fixed  in  its  original  articles  of  association 
and  determined  by  said  Comptroller;  and  no  increase  of  the 
capital  stock  of  any  national  banking  association,  either 
within  or  beyond  the  limit  fixed  in  is  original  articles  of  as- 
sociation, shall  be  made  except  in  the  manner  therein  pro- 
vided." 

A  national  bank  desiring  to  increase  the  capital  stock,  the 
first  step  necessary  upon  the  part  of  said  association  is  to 
call  a  meeting  of  shareholders  for  that  purpose,  and  at  said 
meeting  adopt  suitable  resolutions  authorizing  the  increase. 
Before  the  resolution  adopted  at  said  meeting  becomes  lawful 
it  must  receive  the  votes  of  shareholders  representing  two-thirds 
of  the  existing  stock.  A  resolution  passed  hy  a  vote  of  two- 
thirds  of  the  shares  represented  at  the  meeting  will  not  he  suf- 
ficient. 

The  succeeding  step  is  to  open  subscriptions  for  the  new 
stock;  when  all  of  said  stock  lias  been  subscribed  and  paid  for, 

[224] 


cii.  XVII.]  Baxkixg.  225 

such  proceedings  should  be  certified  to  the  Comptroller  of  the 
Currency. 

It  is  held  by  the  Comptroller  of  the  Currency  that: 

"  *  "  *  in  increasing  the  capital  stock  of  a  bank  no 
moneys  in  the  surplus  fund,  or  to  the  credit  of  undivided 
profit  account  can  be  used  except  by  the  declaration  of  a  divi- 
dend by  the  board  of  directors  in  the  regular  course,  where- 
upon the  shareholders,  if  they  so  desire,  may  use  the  pro- 
ceeds thereof  in  payment  of  their  subscription  to  the  addi- 
tional stock.  Such  portion  only  of  the  surplus  funds  as  exceeds 
the  amount  required  by  law  may  be  capitalized  in  the  man- 
ner indicated." 

The  action  of  the  Comptroller  of  the  Currency,  in  approv- 
ing of  an  increase  of  the  capital  of  a  national  bank,  and  cer- 
tifying that  the  amount  thereof  has  been  paid  in,  is  conclusive, 
and  the  validity  of  the  increase  cannot  be  assailed  in  a  col- 
lateral proceeding,  such  as  an  action  to  enforce  the  liability 
of  a  stockholder.  If  the  stockholders' have  received  their  ad- 
ditional stock,  and  for  several  years  held  themselves  out  to  the 
public  as  stockholders,  they  cannot  subsequently,  when  the 
bank  becomes  insolvent,  and  they  are  assessed  to  pay  its  in- 
debtedness, deny  their  liability  upon  the  ground  that  the 
increase  of  capital  was  fraudulent.^ 

Under  the  United  States  Statute,  national  banks  have  the 
power  to  increase  their  capital  to  such  a  limit  as  may  be  ap- 
proved by  the  Comptroller  of  the  Currency.^ 

The  capital  cannot  be  increased  for  the  entire  amount  until 
new  capital  stock  has  been  paid  in,  and  not  until  the  Comptrol- 
ler of  the  Currency  has  certified  to  the  increase.^ 

It  is  held  in  the  case  of  Aspenwall  v.  Butler,  133  U.  S. 
595,  that: 

"  *  ^  "  when  the  previous  proceedings  looking  to  an 
increase  in  the  capital  stock  in  the  national  bank  have  been 
regular,  and  all  that  are  requisite,  and  a  stockholder  sub- 
scribes to  his  proportionate  part  of  the  increase,  and  pays  his 
subscription,  the  law  does  not  attach  to  the  subscription  a  con- 

1  Upton  /•.  Tribilcock,  91  U.  S.  45.  3  McFarlin   r.    National    Bank   of 

2  Chubb  r.  Upton.  9,5  U.  S.  665 ;  Kansas  City.  G8  Fed.  Rep.  868 ; 
Veeder  r.  ]Mudf;ott,  95  N.  Y.  295 ;  Charleston  *  r.  Peoples'  National 
Scovill    v.    Thayer.    105   U.    S.    14.3;  Bank,  5  S.  C.  103. 

Latimer  r.  Bard.  76  Fed.  536. 

15 


226     Ixcin:A8i>;G  oi;   Reducing   Capital  Stock.      [cii.  xvii. 

dition  that  it  is  to  be  void  if  the  whole  increase  authorized 
be  not  subscribed,  although  there  may  be  cases  in  which  equity 
would  interfere  to  protect  him  in  case  of  a  material  deficiency." 

The  same  authority  holds  that: 

''  *  "  *  the  provision  in  the  Revised  Statute,  section 
5142,  that  no  increase  of  capital  in  a  national  bank  shall  be 
valid  until  the  whole  amount  of  the  increase  shall  be  paid  in, 
and  the  Comptroller  of  the  Currency  notified  and  his  consent 
obtained,  was  intended  to  secure  the  actual  cash  payment  of 
the  subscriptions  made,  and  to  prevent  watering  of  stock,  but 
not  to  invalidate  bona  fide  subscriptions  actually  made  and 
paid. 

"  The  Comptroller  of  the  Currency  has  power  by  law  to 
assent  to  an  increase  in  the  capital  stock  of  a  national  bank 
less  than  that  originally  voted  by  the  directors,  but  equal  to 
the  amount  actually''  subscribed  and  paid  for  by  the  share- 
holders under  that  vote." 

The  right  of  shareholders  to  subscribe  for  new  shares  of 
stock,  gives  them  the  right  to  subscribe  in  proportion  to  their 
shares  in  the  original  stock.  A  shareholder,  however,  may 
waive  his  right  to  the  new  subscription.  Such  a  waiver  need 
not  necessarily  be  given  in  writing,  it  may  be  given  tacitly. 
Each  shareholder  has  the  right  to  subscribe  to  the  new  stock, 
and  his  right  holds  for  a  reasonable  time,  and  until  subscrip- 
tions are  closed. 

Where  a  stockholder  has  subscribed  his  proportion  to  double 
the  capital  stock,  and  pays  his  subscription,  he  cannot  repudi- 
ate it  because  the  stockholders,  with  the  consent  of  the  Comp- 
troller of  the  Currency,  reduced  the  amount  of  the  stock  they 
originally  intended  to  issue.^ 

The  same  authority  holds  that: 

"  *  *  *  a  subscription  to  stock  in  a  national  bank  and 
payment  in  full  on  the  subscription  and  entry  of  the  sub- 
scriber's name  on  the  books  as  a  stockholder  constitutes  the 
subscriber  a  shareliolder  ivitliout  taking  out  a  certificate." 

For  a  form  of  resolution  to  increase  the  capital  stock  of  a 
national  bank  as  approved  by  the  Comptroller  of  the  Cur- 
rency, see  Appendix. 

4  Pacific   National  Bank  r.  Eaton,   141   U.  S.  227. 


cii.  XVII.]  Banking.  227 

§  166.  Increasing  capital  stock  of  State  banks. 

The  capital  stock  of  all  incorporated  companies  being  gen- 
erally fixed  by  the  statute  and  the  charter  in  the  original 
articles  of  incorporation,  it  frecjiiently,  however,  happens  that 
the  capital  stock  is  found  to  be  too  small  and  an  increase  is 
demanded.  Such  a  change  cannot  be  made  lawfully  only  un- 
der certain  conditions  and  limitations.  In  the  absence  of  ex- 
press authority  from  the  State,  a  corporation  has  no  power  to 
increase  or  reduce  the  amount  of  its  stock.^ 

Where  an  attempted  increase  or  reduction  of  the  stock  of 
the  corporation  is  not  authorized  by  the  charter,  and  there 
is  no  authority  given  by  statute,  not  even  the  unanimous  a^^- 
sent  and  agreement  of  all  of  the  parties  interested  would 
legalize  the  transaction.^ 

A  State  banking  corporation,  duly  incorporated  according 
to  the  laws  of  the  State,  may,  where  the  statute  so  provides, 
at  any  time  during  the  life  of  the  corporation,  increase  its 
capital.  The  procedure  defined  by  the  statute  must  be  strictly 
conij)lied  with. 

It  is  held  that: 

"  *  ^  "  an  injunction  is  the  proper  remedy  to  prevent 
an  illegal  increase  or  reduction  of  capital  stock  of  a  corpora- 
tion, but  an  injunction  against  the  issue  of  new  stock  by  a 
foreign  corporation  will  be  dissolved  where  the  courts  of  the 
State,  where  the  corporation  was  created,  decide  such  issue 
of  stock  to  be  legal.  ^ 

In  the  case  of  White  v.  AVood,  129  N.  Y.  527,  it  is  held 
that  "  an  increase  of  the  capital  stock  without  Avarrant  or 
authority  is  called  an  over-issue  of  stock." 

In  the  State  of  California  the  statute  provides  that: 

u  *  *  *  ^^  corporation  shall  issue  stock  or  bonds  except 
for  money  paid,  labor  done,  or  property  actually  received,  and 
all  fictitious  increase  of  stock  or  indebtedness  is  void. 

"  Every  corporation  may  increase  or  diminish  its  capital 
stock,  create  or  increase  its  bonded  indebtedness  subject  to 
the  following  provisions  "  (then  follows  the  provisions  of  the 

5  Scovill  V.  Thayer,  105  U.  S.  7  Cook  on  Corporations,  5th  cd., 
143,  148.                                                          §  281. 

6  Cooke   r.  Marshall,   191   Pa.   St. 
315   (1899). 


22S     IxcEEAsiXG  OR  Eeducixg  Capital  Stock,      [ch.  xvii. 

law  providing-  the  mode  and  requirements  of  the  statute  upon 
the  subject). 

It  is  held  in  the  case  of  D.  Stein,  Appellant  v,  Charles  How- 
ard, et  al,  65  Cal.  616,  that: 

"  *  *  *  under  the  Code  and  Constitution  of  the  State 
of  California  an  increase  of  the  capital  stock  of  the  corporation, 
and  the  issuing  of  the  additional  shares  to  be  sold  at  a  price 
less  than  the  nominal  value  of  the  stock  to  supply  funds 
actually  required  by  the  corporation,  is  not  a  fictitious  issue 
of  the  stock  within  the  meaning  of  article  12,  section  11  of  the 
Constitution." 

In  Jefferson  v.  Ilewett,  103  California,  624,  the  court 
holds: 

u  vf  *  -H-  ^|j^|.  ^^ii(]pj.  section  359  of  the  Civil  Code  which 
provides  that  no  corporation  shall  issue  stock  or  bonds  ex- 
cept for  money  paid,  labor  done  or  property  actually  received, 
that  certificate  of  stock  issued  upon  credit  is  absolutely  void." 

It  is  also  held  in  California  that  under  the  statute  which 
provides  that  stock  shall  be  void  except  for  money  paid, 
labor  done,  or  property  actually  received,  "  that  a  note  given 
in  payment  for  stock  with  a  valid  consideration,  is  a  legal  is- 
sue of  stock." 

Where  the  statute  of  a  State  provides  how,  a  corporation 
may  increase  or  reduce  its  capital  stock,  the  courts  have  no 
power  by  mandate  or  decree,  or  in  any  other  manner  the 
right  to  affect  the  increase  or  decrease  of  the  capital  stock. 

It  is  held  in  Smith  v.  Xortli  American  Mining  Co.,  1  Nev. 
423,  and  in  Mechanic's  Bank  v.  Xew  Road  Rd.,  13  X.  Y.'  599, 
that: 

"  ^  "  *  when  a  corporation  has  issued  certificates  of 
stock  (which  are  valid  and  not  void)  to  the  full  extent  of  all 
of  the  shares  which  by  law  and  the  constitution  of  the  company 
it  may  issue,  no  court  can  order  the  issuance  of  other  shares 
because  in  that  respect  the  powers  of  the  corporation  have  been 
exhausted.  Stockholders  alone  have  the  right  to  authorize 
the  increase  in  the  capital  stock  of  the  corporation.  Where, 
bv  legislative  act  or  charter,  an  increase  of  capital  stock  is 
effected  bv  the  act  and  assent  of  the  board  of  directors,  it  is 
held  that  it  must  be  ratified  and  authorized  by  the  stockholders 
at  a  corporate  meeting." 


CH.  XVII.]  Banking.  229 

"  The  statute  of  the  State  governs  the  power,  and  may  direct 
and  authorize  the  directors  of  a  corporation  and  vest  them  with 
power  to  increase  the  capital  stock."  ^ 

§  167.  Reduction  of  capital  stock. 

National  hanks. — The  Revised  Statutes  of  the  United  States, 
section  5143,  provides  that: 

"  *  *  *  any  association  formed  under  this  title  may,  by 
vote  of  shareholders  owning  two-thirds  of  its  capital  stock,  re- 
duce its  capital  to  any  sum  not  below  the  amount  required  for 
its  outstanding  circulation,  nor  shall  any  such  reduction  be 
made  until  the  amount  of  the  proposed  reduction  has  been  re- 
ported to  the  Comptroller  of  the  Currency  and  his  approval 
thereof  obtained." 

The  Comptroller  of  the  Currency  recites  that  by  his  con- 
sent and  the  vote  of  shareholders  owning  tAvo-thirds  of  the 
shares,  a  national  bank  may  reduce  its  capital  stock  to  any  sum 
not  below  the  minimum  amount  required  by  the  JSTational 
Bank  Act.  A  reduction  becomes  operative  upon  the  issuance 
of  his  certificate  and  approved. 

An  association  that  contemplates  reducing  its  capital,  should 
always  advise  the  Comptroller  thereof  before  formally  sub- 
mitting the  matter  to  the  shareholders.  Before  any  final  ac- 
tion can  be  taken  in  the  reduction  of  the  stock  of  such  an 
association,  steps  should  be  taken  to  call  a  meeting  of  stock- 
holders ;  the  stockholders  should  then  adopt  a  suitable  resolu- 
tion authorizing  the  reduction ;  two-thirds  of  the  stock  of  the 
bank  is  necessary  in  the  reduction ;  two-thirds  of  the  quorum 
voting  in  favor  of  the  proportion  is  not  sufficient.  A  reduction 
of  capital  stock  in  no  case  can  occur  to  reduce  the  capital  below 
the  minimum  amount  of  capital  required  by  section  5158,  Re- 
\'ised  Statutes  of  the  United  States. 

Capital  stock  set  free  by  the  process  of  reduction  belongs  to 
the  stockholders  in  proportion  to  the  number  of  shares  held  by 
each.  The  stock  cannot  bo  retained  by  the  bank  for  any  pur- 
pose whatever ;  the  released  capital  stock,  from  the  date  of  the 
reduction  certificate  issued  by  the  Comptroller  of  the  Currency, 
becomes  the  property  of  the  individual  stockholders. 

In  the  case  of  McCann  v.  The  First  I^ational  Bank  of  Jef- 

8  Southerland   r.  Oleott,  95  N.  Y.  03. 


230     Increasing  ok  Reducing  Capital  Stock,      [cii.  xvii. 

fersonville,  112  Ind.  354,  where  the  capital  stock  of  the  bank 
was  shown  to  be  impaired  and  the  reduction  was  made  to  avoid 
assessments,  the  lang'uage  of  the  court  is  as  follows:  "  In  the 
present  case  the  reduction  was  not  made  to  affect  a  distribu- 
tion of  the  accumulated  surplus  or  unemployed  capital  of  the 
bank ;  the  original  capital  had  become  impaired  bv  reason  of 
"  bad  debts  "  and  the  stockholders  were  in  the  situation  of 
being  compelled  to  elect  either  to  submit  to  an  assessment  of 
their  stock,  or  go  into  liquidation  and  reduce  the  capital  of 
the  bank  so  as  to  put  the  amount  of  the  capital  in  correspond- 
ence with  its  value.  They  chose  the  latter  alternative  rather 
than  submit  to  an  assessment  of  their  stock,  so  as  to  make  good 
their  deficiency ;  each  stockholder  surrendered  a  ]iroportionate 
share  of  their  stock,  and  by  that  means  they  secured  the 
privilege  of  continuing  the  business  of  the  bank  \vith  a  reduced 
capital.  Tlie  appellant,  as  appears  from  his  complaint,  sur- 
rendered his  ])r()p(»rtion,  receiving  as  a  consideration  thei*ef(n- 
immunity  from  the  impending  assessment,  and  the  privilege 
of  holding  the  residue  of  his  stock  in  a  continuing  association. 
This  was  all  the  consideration  he  contemplated,  and  all  that 
was  implied  in  the  transaction."  ^ 

Having  received  the  whole  consideration  upon  which  the 
surrender  was  made,  the  stockholders  could  not  afterward  re- 
cover more,  simply  because  the  bank  succeeded  in  realizing 
upon  the  suspended  bills  and  notes,  the  suspension  of  Avhich 
occae'oned  the  reduction.     ' 

(For  a  form,  as  prepared  by  the  Comptroller  of  the  Cur- 
rency, being  the  resolution  to  reduce  the  capital  stock,  see 
Appendix.) 

It  is  held  by  the  Comptroller  of  the  Currency  that  ''  no 
part  of  the  reduction  can  be  carried  to  surplus  or  undivided 
profits  without  the  unanimous  consent  of  the  shareholders. 
When  the  reduction  is  made  the  shareholders  should  return 
their  old  certificates.  Xew  Certificates,  if  the  capital  is  re- 
duced, should  then  be  issued.  It  is  competent  to  issue  certifi- 
cates for  fractional  shares." 

The  Comptroller  of  the  Currency  also  requires  that  a  record 
of  the  vote  of  stockholders  should  be  kept  and  forwarded  Anth 
the  resolution. 

SDolano  r.  Butler.  118  U.  S.  634. 


CH.  XVII.]  Baxkixg.  231 

§  168.  Reducing  capital  of  State  banks. 

The  capital  stock  of  a  State  banking  corporation  can  only  be 
reduced  by  complying  \Wtli  the  law  as  enacted  in  each  State. 
The  statute  providing  the  steps  to  be  taken  and  the  proceedings 
to  be  had  must  be  strictly  complied  with.  In  no  instance  can 
the  capital  stock  be  reduced  to  an  amount  less  than  the  in- 
debtedness of  the  corporation.  In  the  State  of  California  the 
statute  reads  that  "  no  corporation  shall  diminish  its  capital 
stock  to  an  amount  less  than  the  indebtedness  of  the  incorpora- 
tion.'' After  an  authorized  reduction  of  the  capital  stock 
of  a  duly  incorporated  company  it  is  held,  that  the  '"  amount 
of  corporate  assets  over  and  above  the  amount  of  the  capital 
stock  is  reduced,  and  the  debt  is  equivalent  to  surplus  profits, 
and  may  be  treated  as  such  by  the  corporation.  It  may  be 
set  aside  as  surplus,  or  it  may  be  divided  among  the  stock- 
holders proportionately,  inasmuch  as  the  rights  of  previous 
corporate  creditors  are  not  injured."  ^'^ 

And  the  same  authority  holds  that  "  under  certain  circum- 
stances the  surplus  may  be  used  to  buy  outstanding  shares  of 
stock." 

In  Strong  v.  Brooklvn  Cross  Town  K.  R.,  93  X.  Y.  426, 
held: 

"  *  *  *  where  upon  the  reduction  of  the  capital  stock 
of  a  bank,  certificates  of  deposit  are  issued  to  the  stockholders 
to  the  amount  of  the  reduction  of  the  capital  stock,  such  certifi- 
cates of  deposit  can  be  enforced  only  to  the  extent  that  the 
actual  assets  of  the  bank  exceeded  its  liabilities  and  reduced 
capital  stock." 

A  distribution  is  only  lawful  when,  upon  investigation,  it  is 
found  that  the  capital  stock  was  imimpaired  at  the  time  of  the 
decrease.  The  reduction  of  the  capital  stock  of  the  corporation 
does  not  take  place,  and  is  not  final  in  the  State  of  California 
until  the  filing  of  the  proper  certificate  in  the  ofiice  of  the 
Secretary  of  State. 

"Wlien  the  statute  of  a  State  makes  a  certificate  conclusive 
proving  that  the  capital  stock  has  been  reduced,  the  same  can- 
not l)e  questioned  in  a  collateral  proceeding,  though  the  re- 
duction was  not  made  in  accordance  with  the  statute.-*^ 

10  Cook  on  Corporations.  §  2^0.  .300    (1899),   aff'd    (1900),   2   Q.   B. 

11  Ladies,    etc..    Associatio'i.    Lim-        .376. 
ited,    V.    Pulbrook,    81    L.    T.    Rep. 


CHAPTER  XVIII. 


CHANGING  NAME  OF  BANK. 

§  169.  Adopting  new  name. 

The  name  of  the  corporatiou  is  an  essential  part  of  the  in- 
strument or  articles  of  incorporation,  it  cannot  exist  or  do 
business  without  a  name.  The  law  authorizing  a  bank  to 
amend  its  articles  of  incorporation  does  not  apply  where  the 
object  is  to  change  the  name  of  the  corporation.  The  name 
of  a  corporation  may,  or  may  not,  designate  its  purpose.  Where 
a  new  name  is  to  be  entirely  adopted,  this  can  be  done  only  by 
complying  with  the  special  provisions  of  the  statutes  prescrib- 
ing the  mode  of  procedure. 

When  the  name  of  a  corporation  is  to  be  abandoned  and  an 
entirely  new  and  different  name  to  be  substituted,  it  can 
hardly  be  an  amendment,  or  classed  as  an  amendment  to  the 
articles  of  incorporation.  The  articles  of  incorporation  usually 
may  be  amended  without  application  to  a  court  of  record,  while 
in  some  of  the  States  an  application  for  change  of  name  must 
be  made  to  the  court,  and  Avhere  a  statute  prescribes  a  mode  of 
procedure  it  is  mandatory  and  must  be  followed. 

The  National  Banking  Act  provides  by  the  act  of  'Max  1, 
1886,  section  2,  that  the  name  of  a  national  bank  may  be 
changed;  said  section  reads: 

''  That  any  national  banking  association  may  change  its 
name  *  *  *  with  the  approval  of  the  Comptroller  of  the 
Currency  by  the  vote  of  shareholders  holding  two-thirds  of 
the  stock  of  such  association.  Duly  authenticated  notice  of 
the  vote  and  of  the  new  name  *  *  *  shall  be  sent  to  the 
office  of  the  Comptroller  of  the  Currency,  but  no  change  of 
name  *  *  *  shall  be  valid  until  the  Comptroller  shall  have 
issued  his  certificate  of  approval  of  the  same.'' 

The  name  of  a  national  bank  cannot  be  changed  unless  by 
consent  of  the  Comptroller  of  the  Currency.  Section  3  of  the 
act  approved  May  1,  1886,  provides  that: 

"All  debts,  liabilities,  rights,  provisions  and  powers  of  the 
association  under  its  old  name  shall  devolve  upon  and  inure 
to  the  association  under  its  new  name." 

[232] 


CH.  XVIII,]  Banking.  233 

Section  4  of  said  act  provides: 

"  *  *  *  tliat  nothing  in  this  act  contained  shall  be  con- 
strued as  in  any  manner  to  release  any  national  banking  as- 
sociation under  its  old  name  *  *  *  from  any  liability,  or 
effect  any  action  or  proceeding  in  law  in  Avhich  said  associa- 
tion may  be,  or  become,  a  party  interested. 

''A  national  bank  desiring  to  change  its  name  may  call  a 
meeting  of  the  shareholders  for  that  purpose,  and  by  their 
directions  direct  that  the  president  or  cashier  of  the  association 
submit  the  resolutions  adopted  by  the  shareholders  to  the 
Compfroller  of  the  Currency,  and  if  approved  by  him  he  will 
issued  a  certificate  to  the  effect  that  the  change  has  been  ap- 
proved by  him." 

When  a  State  bank  desires  to  change  its  name,  after  the 
preliminary  steps  have  been  taken  by  the  shareholders  of  the 
corporation,  and  where  a  procedure  is  to  be  had  in  a  court  of 
record,  an  application  may  be  made  to  said  court,  by  petition 
or  bill,  setting  out  the  necessary  facts,  and  upon  hearing,  no 
objector  intervening,  the  court  may  order  a  change  of  name ; 
but  where  sufficient  objections  have  been  alleged  by  parties 
who  would  be  directly  injured,  and  a  serious  wrong  be  perpe- 
trated upon  some  other  friendly  corporation  having  a  similar 
name,  the  court  would  probably  refuse  the  application.  The 
statute  of  the  State  wherein  the  bank  is  located  would  govern 
the  procedure,  rights,  and  power  of  the  coqioration  to  change 
its  name. 

The  statute  authorizing  a  corporation  to  select  its  name  Avill 
protect  it  in  retaining  the  same,  and  the  courts  are  inclined 
to  protect  the  name  of  a  corporation  independently  of  any 
statute. 

In  Holmes  v.  Holmes,  etc.,  Co.,  37  Conn.  278,  the  court,  in 
discussing  this  question,  holds  that  "  a  corporate  name,  legally 
acquired,  should  be  protected  upon  the  same  pricipal  and  to 
the  same  extent  that  individuals  are  protected  in  the  use  of 
trade-marks."  "  The  case  of  an  encroachment  is  analogous  to, 
if  not  stronger  than  that  of  a  piracy  upon  an  established  trade- 
mark." ^ 

"  In  Massachusetts,  by  statute,  a  foreign  corporation  doing 

1  NpAvbv    V.    Orppon    Centra]    Rv..       Rubber  Co.  r.  Goodvear  Rubber  Co., 
18  Fed.  Cases,  38;  Goodyears'  India        128  U.  S.  598. 


234  Changing   Xame   of   Bank.  [cii.  xviii. 

a  banking,  loan,  trust,  or  investment  business  in  the  State 
cannot  use  the  same  name  as,  or  a  similar  name  to,  a  domestic 
corporation."  ' 

In  Higgins  Co.  v,  Iliggins  Soap  Co.,  144  N,  Y.  462,  Xew 
York  Court  of  Appeals  states  the  law  as  follows:  ''  In  respect 
to  corporate  names  the  same  rule  applies  as  to  the  names  of 
firms  or  individuals,  and  an  injunction  lies  to  restrain  the  sim- 
ulation and  use  by  one  corporation  of  the  name  of  a  prior 
corporation  which  tends  to  create  confusion,  and  to  enable  the 
latter  corporation  to  obtain  by  reason  of  the  similarity  of 
names  the  business  of  the  prior  one.  The  courts  interfere  in 
these  cases,  not  on  the  ground  that  the  State  may  advise  such 
corporate  names  as  it  may  elect  to  the  entities  it  creates,  but 
to  prevent  fraud,  actual  or  constructive.  For  the  purpose  of 
suits  it  is  held  that  the  original  name  remains  unchanged."  ^ 

The  changing  of  a  name  of  a  corporation  cannot  affect  its 
real  estate  contracts.* 

As  to  the  right  of  a  corporation  to  maintain  an  action  on 
the  contract  or  note  executed,  to-wit:  In  the  old  name.' 

It  has'  been  held  that  where  a  coi-poration  selects  a  name 
similar  to  one  already  in  existence  without  the  knowledge  of 
such  facts  and  without  intention  of  deceit,  the  court  may,  in 
the  exercise  of  its  discretion  refuse  an  injunction.^ 

In  the  absence  of  statutory  provisions  providing  that  a  cor- 
poration may  change  its  name,  it  has  no  power  to  do  so.^ 

2  Cook    on    Corporations,    Vol.    1,  4  Wellflev     r.     Shenandoah,     etc., 
{5th    ed.),    §    l.T;    International    T.        Co.,  83  Va\  768. 

Co.    r.   Tnternationil   Loan   &   Trust  5  Northwestern  College  r.  Schwag- 

Co..    153    Mass.    271;     The    Illinois  ler,  37  la.  577. 

Watch  Case  Co.  r.  Piearson,  140  111.  6  Hvgeia.   etc.,   Co.    r.   New   York, 

423.  etc..  Co..   140  N.  Y.  94. 

3  Morris  r.  St.  Paul,  etc.,  Ry.  Co.,  7  Bellows  v.  Hallawell,  etc..  Bank, 
19  Minn.  459.  2   Mason,  31 ;    Svkes   r.  People,   132 

111.  32. 


CHAPTER  XIX. 


DEPOSITS. 


§  170.  Nature  of  deposits. 

A  deposit  made  by  a  dealer  with  the  bank  (unless  declared 
special),  and  placed  to  his  credit  as  such,  makes  it  a  general 
deposit.  There  being  no  terms  or  agreement  expressed  or 
fixed  between  the  bank  and  the  depositor,  that  it  is  to  be  held 
by  the  bank  as  distinct  from  other  deposits  which  are  general, 
it  therefore  becomes  what  is  termed  a  general  deposit.  The 
depositor  in  making  a  deposit  in  a  commercial  bank,  does  so 
with  the  implied  promise  that  (unless  some  special  agreement  is 
entered  into)  it  will  repay  the  same  upon  demand.  The  money 
therefore  becomes  the  property  of  the  bank,  and  the  bank  has 
a  right  to  the  use  of  the  same,  but  must  repay  it  upon  demand 
without  grace.  A  general  deposit  is  therefore  one  which  de- 
prives the  depositor  of  the  title  to  the  funds  until  a  demand 
is  made  for  repayment;  and  it  is  at  once  owned  by  the  bank, 
and  ownership  authorizes  the  bank  to  use  the  same  until  called 
for  by  the  depositor.  During  such  ownership  the  bank  may 
loan  the  money  and  make  profit  therefrom.  The  position  be- 
tween the  bank  and  the  depositor  in  a  commercial  bank  of  a 
general  deposit  is  always  one  of  debtor  and  creditor,  and  the 
bank  is  bound  by  law  to  pay  upon  demand.  A  depositor  in 
such  a  case  is  not  required  to  give  notice  of  a  particular  time 
when  he  wall  demand  payment,  but  may  present  his  check 
drawn  upon  the  bank  and  against  his  account,  without  previous 
notice,  and  the  amount  withdra^wm  discharges  the  debt  of  the 
bank  to  the  extent  of  the  sum  named  in  the  check.  "When  the 
position  between  the  depositor  and  the  banker  is  one  purely 
of  debtor  and  creditor,  the  bank  cannot  be  held  to  the  position 
of  a  trustee,  but  may  loan  such  funds  for  the  profit  of  the 
bank. 

Special  deposits  are  the  placing  of  specific  kinds  of  property, 
or  money,  in  the  possession  of  the  bank,  to  be  held  by  it  in 
kind  and  returned  t'^  the  bailor.     The  bank,  in  such  a  case,  in 

[2.35] 


236  Deposits.  [ch.  xis. 

accepting  the  property  or  money,  merely  becomes  the  bailee  of 
the  depositor.  Tlie  distinction  between  a  general  and  speciat  de- 
posit is,  tltat  if  general,  the  depositor  loses  the  title  to  the 
money ;  if  special,  the  title  of  the  deposit  always  remains  with 
the  depositor  or  bailor,  and  must  be  returned  in  specie  or  kind. 
The  insolvency  of  the  bank  does  not  change  the  position  be- 
tween the  parties;  the  property  must  be  returned,  and  the 
depositor  is  entitled  to  the  identical  property.  A  special  de- 
posit, if  made  in  money  and  accepted  by  a  bank,  should  not  lose 
its  identity  and  be  mingled  with  or  thrown  into  the  general 
cash  funds  of  the  bank.  The  reason  for  this  is  evident,  for  it 
cannot  become  part  of  the  general  resources  or  liabilities  of 
the  bank,  but  it  becomes  a  special  liability  and  is  governed  by 
the  laAV  in  such  cases  made  and  provided. 

It  is  a  well  conceded  principle  of  law  that  the  banker  and 
depositor  may,  at  the  time  the  deposit  is  made,  make  any  law- 
ful contract  as  to  the  terms  upon  which  it  is  received,  and  also 
terms  upon  which  it  may  be  paid  or  returned. 

§  171.  Nature  of  general  deposits. 

The  relation  of  banker  and  depositor,  where  a  general  de- 
posit is  made  in  the  bank,  either  on  demand  or  on  time,  is  one 
of  debtor  and  creditor.  As  previously  stated,  a  general  deposit 
when  placed  in  the  bank  becomes  the  property  of  the  bank. 
The  bank  becomes  a  debtor  to  the  depositor  for  the  amount 
thereof  deposited,  and  the  debt  can  only  be  discharged  by  pay- 
ment to  the  depositor  or  pursuant  to  his  order.^ 

General  deposits  in  a  commercial  bank,  received  on  account 
of  the  depositor,  when  not  complicated  with  transactions  other 
than  those  of  depositing  and  withdrawing  the  money,  transfers 
the  ownership  of  the  money  to  the  bank,  and  established  a 
relationship  between  the  parties  of  debtor  and  creditor.^ 

A  deposit  made  in  the  usual  course  of  business  vests  in  the 
bank,  and  cannot  be  recovered  by  the  depositor  on  the  ground 
of  fraud,  even  though  the  bank  was  insolvent  and  failed  on  the 
next  day. 

A  deposit  cannot  be  recovered  by  a  depositor  on  the  ground 

1  The  J^tna  National  Bank  r.  The  -^\    :Mich.    134,    '.■>!    Mioh.    132;     17 

Fourth  National  Hank,  4G  X.  Y.  82:  Weiul.  (X.  Y. )   100;  Collins  r.  State, 

Bank    of    Republic    r.    Millard.     10  1.5  So.  214. 
Wall.    (U.  S.)    1.52;  Xeeley  r.  Rood,  2  Collins  r.  Siate,  1.5  So.  214. 


cii.  XIX.]  Backing.  '  23? 

of  fraud,  even  tlioiigli  the  deposit  is  made  in  reliance  and  on 
representation  by  the  cashier  of  the  bank  that  the  bank  was 
solvent,  unless  the  officer  of  the  bank  knew  of  its  insolvency 
at  the  time  of  the  deposit. 

A  depositor  making  a  deposit  in  a  bank  may,  at  the  time  of 
making  the  same,  contract  with  tlie  hanh  to  ivhom  the  deposit 
shall  he  repaid} 

The  pnl)lic  funds  of  a  municipality  may  be  deposited  in  a 
bank  and  the  bank  may  agree  to  pay  interest  on  such  deposit, 
and  can  also  give  a  bond  to  the  municipality  for  security. 

The  statute  of  the  State  may  provide  otherwise.  The  Con- 
stitution of  a  State  may  also  make  the  receiving  of  such  a 
deposit,  when  received  as  a  general  deposit,  unlawful.  Where 
such  a  statute  or  constitutional  provision  is  in  force,  the  de- 
posit cannot  be  made  and  received  as  a  general  deposit. 

A  party  acting  as  a  trustee  and  making  a  deposit  in  a  bank, 
placing  the  same  to  his  credit  or  private  account,  without  noti- 
fying the  bank  that  the  same  is  a  trust  fund,  the  bank  having 
no  knowledge  of  the  fact  that  he  is  a  trustee,  but  believing  that 
the  property  is  his  own  private  property,  the  bank  does  not 
become  liable  to  the  cestui  que  trusts 

AVhere  a  bank  has  knowledge  of  the  fact  that  money  depos- 
ited with  it  to  the  general  credit  of  one  of  its  depositors  is 
held  in  trust  by  such  depositor,  the  bank  cannot  apply  the 
deposit,  or  any  portion  thereof,  to  cancel  a  note  due  from  the 
depositor  to  the  bank.*^ 

A  deposit  made  in  a  bank  at  a  time  when  the  officers  knew 
that  it  was  in  a  failing  condition  and  insolvent,  held,  that  it 
cannot  be  recovered  from  the  assignee,  unless  it  can  be  identi- 
fied and  traced  to  his  hands. ^ 

Where  a  party  mails  to  a  bank  money  or  checks,  directing 
that  the  bank  place  the  same  on  deposit  to  his  credit,  but  the 
bank  refuses  to  acknowledge  receipt  thereof,  and  persistently 
denies  that  it  has  received  such  money  or  checks,  the  relation- 
ship of  depositor  and  depositee  is  not  established.'^ 

•5  Sj^kes  V.  First  National  Bank,  2  Clemer  v.  Drovers  National  Bank, 
8.  D.'242.  (111.  Snp.)   41  N.  E.  728. 

4  School  District  r.  First  National  6 /»    re    Commercial    Bank,     (Ct. 

Bank.  102  Mass.  174.  Insolv.)   2  Ohio  N.  P.  170. 

6  57    Illinois   App.    107,   reversed;  7  Miller      r.      Western      National 

Bank,   (Pa.  Sup.)   33  A.  G34. 


238  Deposits.  [ch.  xix. 

A  bank  makes  itself  liable,  if  in  any  "vvay  it  colludes  with  a 
trustee  "where  it  may  hold  such  funds,  if  the  trustee  misapplies 
the  same,  and  the  cestui  que  trust  may  refuse  to  look  to  the 
trustee,  and  can  recover  from  the  bank,  holding-  it  responsible 
for  any  liability  or  damage  accruing  to  the  cestui  que  trust. 

Where  a  person  designates  himself  as  a  trustee  for  another, 
and  deposits  the  funds  of  his  cestui  que  trust  in  a  bank,  it  has 
been  held  that  there  is  a  complete  and  valid  transfer  of  the  title 
to  the  funds,  the  title  thereby  immediately  vests  in  the  donee, 
and  the  personal  representative  of  the  donor  cannot  recover 
them  from  the  bank. 

Trust  funds  have  caused  more  or  less  complication  and  lia- 
bility in  the  withdrawal  of  the  same,  but  the  law  seems  to  be 
well  settled  and  established,  that  if  a  trustee  deposits  trust  funds 
to  his  own  account,  and  with  his  individual  money,  the  bank 
having  no  knowledge  of  the  fact,  that  it  may  pay  all  checks 
when  signed  and  presented  by  the  party  making  the  deposit. 

Where  an  agent  or  trustee  deposits  money  belonging  to  his 
principal  in  a  bank,  to  which  he  himself  is  indebted,  and  the 
bank  without  authority  and  in  ignorance  of  the  true  ownership 
of  the  fund,  applies  it  on  the  debt,  the  owner  may  recover  from 
the  bank  if  it  can  be  identified.^ 

When  a  customer  of  a  bank  who  has  overdrawn  his  account, 
and  afterward  makes  a  deposit,  the  presumption  of  law  is,  in 
the  absence  of  evidence,  that  the  deposit  was  general,  and  that 
it  was  made  and  received  toward  the  payment  of  the  overdraft.^ 

Where  a  l)ank  depositor  heard  rumors  of  its  insolvency  and 
went  to  withdraw  his  deposit,  but  was  informed  by  an  officer 
of  the  bank  that  it  was  perfectly  solvent,  the  depositor,  relying 
on  such  representation,  and  permitting  his  deposit  to  remain, 
when  in  fact  it  was  insolvent  at  the  time  the  representations 
were  made,  such  officer  is  personally  liable  to  such  depositor. ■''' 

Where  a  national  bank  has  been  designated  as  a  depository 
of  public  moneys,  such  designation  does  not  constitute  it  as  an 
agent  of  the  government  or  render  the  government  liable  for 
moneys  lost  by  failure  of  the  same.^^ 

A  national  bank  receiving  State  funds,  subject  to  check  and 

8  Burtnett  Admr.  r.  First  National  lo  Townsend  r.  Williams,   (N.  C.) 

Bank,  38  Mich.  (i30.  2.-?  S.  E.  461. 

» Nichols     r.     8tate,      (Neb.)     G5  "Branch    v.    The    United    States, 

N.  W.  774.  1  N.  B.  C.  363. 


cir.  XIX.]  Banking.  239 

to  withdrawal  thereof  on  seven  days'  notice,  and  giving  security 
therefor;  also  agreeing  to  pay  interest  on  daily  balances,  the 
transaction  is  held  to  be  one  of  deposit  and  not  a  loan.^^ 

In  the  case  of  Quin  v.  Earle,  95  Fed.  Eep.  728,  the  court 
holds  that: 

"  To  authorize  the  recovery  of  a  general  deposit  from  the 
.receiver  of  an  insolvent  bank  on  the  ground  that  the  bank  was 
insolvent,  and  known  to  be  so  by  its  officers  when  the  deposit 
was  received,  and  that  the  fraud  authorized  a  reeision  of  the 
contract  by  the  depositor;  the  thing  deposited  or  its  proceeds 
must  be  capable  of  identification  in  the  hands  of  the  receiver 
or  it  must  appear  that  the  funds  coming  into  his  hands  weTe 
increased  by  that  amount." 

The  court  further  says: 

"  To  constitute  fraud  on  the  part  of  a  bank,  in  receiving  a 
deposit  when  insolvent,  which  will  authorize  a  reeision  by  the 
depositor  and  a  recovery  of  the  deposit  from  a  receiver  subse- 
quently appointed  for  the  bank,  the  officers  of  the  bank  must 
have  known  or  believed  that  it  was  insolvent  at  the  time  the 
deposit  was  received;  and  such  knowledge  cannot  be  presumed, 
but  must  be  proved.  The  mere  fact  that  the  bank  was  known 
by  the  officers  to  be  in  an  embarrassed  condition  is  not  sufficient 
to  establish  fraud." 

^Yliere  checks  are  delivered  to  the  bank  by  a  depositor  for 
collection  and  deposit  at  the  tim^  when  the  bank  was  insolvent, 
and  when  it  was  known  by  its  officers  to  be  insolvent,  which 
checks  had  not  been  collected  when  the  bank  closed  its  doors, 
they  remain  the  property  of  the  depositor  and  cannot  be  held, 
by  the  receiver. ^^ 

A  party  who  has  sufficient  funds  in  a  bank  and  draws  a 
check  on  the  same  for  payment,  while  the  funds  are  hot  in  any 
way  encumbered  l)v  an  earlier  lien  in  favor  of  the  bank,  on 
refusal  to  pay  the  check,  he  may  sue  the  bank  for  damages. ^^ 

T\^iere,  after  the  maturity  of  a  promissory  note  held  by  a 
bank,  and  protest  thereof,  the  maker  of  said  note  makes  a  gen- 
eral deposit  of  an  amount  sufficient  to  pay  the  note,  held  that 
this  does  not  of  itself,  as  between  the  bank  and  indorser,  operate 

12  state  of  Neb.  r.  First  National  i4Mt.   Sterling  National   Bank  t". 

Bank  of  Orleans.  88  Fed.  Rep.  947.       Green,  .(Ky.)   35  S.  W.  911. 

i^i  Richardson  i-.  Denegre,  93  Fed. 
Rep.  572. 


24:0  Deposits.  [cii.  xix. 

Ski  a  payment.  In  the  absence  of  an  agreement  between  the 
parties,  the  bank  has  the  option  to  apply  the  money  in  payment; 
but  it  is  under  no  legal  obligation  so  to  do.^^ 

The  writing-up  by  the  bank,  of  a  pass-book,  in  other  words 
what  is  called  "  balancing  of  a  pass  book,"  and  the  delivery 
thereof  to  the  owner,  does  not  preclude  the  owner  of  inquiring 
into  its  correctness.^^ 

A  pass  book  made  transferable  by  the  by-laws  of  a  bank, 
may  bind  the  parties  thereto,  but  it  would  not  be  so  as  to  third 
parties.^^ 

But  an  assignment  and  transfer  of  a  pass-book  with  an  order 
to  pay  the  balance  then  due,  would  l)ind  all  parties  and  the 
bank  could  not  refuse  payment  on  the  order  or  check.  It  is 
held  in  the  case  of  Arnold  v.  Hart,  176  111.  442,  that  pass- 
book wdien  balanced  and  delivered  binds  the  bank,  and  operates 
in  the  same  manner  as  an  account  stated.  This  can  hardly  be  the 
law.  Ail  account  stated  is  an  agreed  balance  of  accounts.  An 
account  ichich  has  been  examined  and  accepted  by  the  parties. 
While  the  pass-book  is  a  statement  of  an  account,  it  does  not 
l)ecome  binding  upon  the  parties  as  an  account  stated  until  it 
has  been  agTeed  between  the  parties  that  a  balance  fixed  which 
has  been  examined  and  accepted  by  the  parties  is  found  to  be 
due.  An  error  may  be  found  by  examination  of  the  pass-book, 
and  the  bank  balancing  the  same  should  also  have  the  privilege 
of  correcting  any  error  fouud  therein.  An  entry  is  a  pass-book 
cannot  be  conclusive  against  either  the  bank  or  the  customer. 
The  entries  therein  made,  may  be  inquired  into.  It  is  a  ques- 
tion of  fact  and  subject  to  investigation. 

The  law  may  provide  that  after  a  certain  period  of  time, 
both  parties  may  be  estopped  by  a  Statute  from  investigating 
or  making  any  corrections.^^ 

ij  172.  Special  deposits. 

Originally,  all  deposits  of  money  deposited  with  a  banker, 
was  a  special  deposit.  The  custom  prevailing  at  that  time  re- 
quired the   banker,   when  called  upon,   to   deliver  to   the   de- 

ir.  Tl>e    National    Bank    of    New-  2  Edw.   Ch.    (N.  Y.)    292;    Bank   v. 

burfjli.  Respondent,  r.  Daniel  Smitli,  Earp,  4  Rawle    (Pa.)    384. 

Appellant.  fiC  N.  Y.  271.  17  Whitte  r.  Vineenot,  43  Cal.  325. 

16  First    National    Bank    r.    Whit-  18  French  r.  Banking  Co.,  01   :\Ie. 

man.  94  U.  S.  343;  Bullock  v.  Boyd,  48.5. 


cii.  XIX.]  Baxkixg.  241 

posiior,  the  same  identical  coin^,  the  depositor  agreeing  to  pay 
the  banker  a  compensation  for  the  care  of  the  property. 

Special  deposits  are  accepted  by  bankers  at  the  present  time, 
and  such  deposits,  may  be  taken  gvatnitously  or  npon  com- 
pensation. 

It  is  a  ^vell  settled  principle  of  law,  that  all  banking  corpora- 
tions organized  for  the  pnrpose  of  conducting  a  banking  busi- 
ness, with  the  right  to  receive  deposits,  unless  prohibited  by 
Statute  or  the  bank's  charter,  may  accept  on  deposit,  special 
deposits  of  money,  stocks,  bonds,  or  other  personal  property 
for  safe  keeping,  either  for  compensation  or  gratuitously. 

Special  deposits  as  stated,  are  placing  specific  kinds  of  prop- 
erty, or  money,  into  the  care  or  possession  of  the  bank  to  be 
held  by  it  and  returned  at  some  future  time.  The  bank,  in 
such  a  case,  becomes  the  bailee  of  the  depositor,  and  upon  de- 
mand by  the  bailor  the  property  must  be  returned. 

Special  deposit  when  made  in  money,  should  never  lose 
its  identity  or  be  mingled  with  or  thrown  into  the  general  cash 
funds  of  the  bank.  The  reasons  for  this,  as  stated  are  obvious. 
The  money  so  deposited  cannot  become  a  part  of  the  general 
resources  or  liabilities  of  the  bank,  but  becomes  a  special  lia- 
bility and  is  governed  by  the  law  of  liailment. 

The  distinction  between  a  general  and  special  deposit,  as 
previously  stated,  is  this,  when  general,  the  identity  of  the  prop- 
erty is  lost.  If  special,  it  should  at  all  times  he  capable  of  being 
identified.  A  special  deposit  of  money  can  be  made  as  stated, 
and  be  returned  and  be  identified.  If,  however,  it  is  allowed 
to  be  intermingled  with  the  general  cash  funds  of  the  bank, 
it  must  necessarily  lose  its  identity  and  thereby  become  a 
general  liability  of  the  bank. 

Xational,  State  Commercial  Banks,  and  Savings  Banks,  with- 
out a  special  prohibitive  provision  enacted  in  their  charter, 
have  the  right  to  accept  special  deposits.  A  mutual  savings 
bank  organized  and  conducted  purely  upon  the  mutual  prin- 
ciples, unless  such  a  provision  is  enacted  into  its  charter,  has 
no  authority  incidental  or  otherwise,  to  accept  special  deposits. 

It  is  held  that  a  national  bank  has  authority  to  accept  special 
deposits: 

1.   Upon   the  ground  that  it  is   a   power   incidental   to   the 
banking  business. 
16 


242  Deposits.  [ch.  xix. 

2,  That  section  5/228  of  the  Kevised  Statutes  of  the  U.  S.  im- 
plies the  authority  that  a  national  bank  may  receive  deposits 
of  bonds  and  securities  for  safe  keeping,  either  for  a  compensa- 
tion or  gratuitously.^'^ 

But  the  question  as  to  whether  the  cashier  or  other  execu- 
tive officer  of  a  national  bank,  has  the  authority  to  take  a 
special  deposit  for  safe  keeping  without  direction  from  the 
board  of  directors,  is  questioned.  The  authority  must  be  im- 
plied by  custom  or  usage  and  known  to  be  exercised  and 
sanctioned  by  the  board  of  directors. ~° 

The  question,  however,  is  different  even  without  authority 
expressed  or  implied,  where  the  bank  habitually  receives  special 
deposits,  it  will  be  bound  by  the  acts  of  the  officers  receiving 
the  same.^^ 

When  a  special  deposit  is  received  by  the  bank  and  is  lost 
through  the  gross  negligence  of  the  officers,  managers  or  em- 
ployees thereof,  the  bank  will  be  hekl  liable  to  the  owner  for 
the  value  of  the  deposit." 

It  is  held  that  where  a  national  bank  receives  United  States 
bonds  of  a  certain  class,  with  instructions  to  have  them  con- 
verted into  bonds  of  another  class,  for  a  failure  to  deliver  the 
bonds  on  demand  the  bank  becomes  liable.^^ 

It  is  the  duty  of  a  national  bank  or  other  bank  where  prop- 
erty deposited  with  it  as  a  special  deposit,  and  is  stolen  by 
burglars,  to  take  active  steps  for  the  recovery  of  the  property 
and  a  failure  to  exercise  proper  diligence  and  care  in  perform- 
ing such  an  undertaking,  the  bank  may  be  held  in  damages  for 
such  failure. ^^ 

In  an  action  against  a  national  bank  to  recover  bonds  de- 
posited with  it  for  safe  keeping  without  compensation,  and 
which  the  bank  alleged  were  stolen  from  it  vaults,  it  was  held : 

1.  That  the  bank  was  liable  only  for  gross  negligence. 

2.  That   a  failure  to   give   prompt   notice   of  the   robbery 

19  Pattison    r.    Syracuse   National  Syracuse  National   Bank.   80  X.   Y. 

Bank,  80  N.  Y.  82;   National  Bank  82. 

r.  (irahani,  100  U.  S.  699.  22  National  Bank  r.  (Irahani.   100 

20WilPv   r.   First   National   Bank  V.  S.  699. 

of    Brattieboro,    47     Vermont    .546;  23  Loach  r.  Hale,  .31  la.  69. 

National    Bank   of   Lyons   r.    Ocean  24  Wylie    r.    Northampton    Bank, 

National   Bank.  60  N.  Y.  278.  119  U.' S.  361. 

21  f'liattahoochee    National     Bank 
r.   Schley,  .58   Ga.   369;   Pattison   c. 


cii.  XIX.]  Backing,  •  2-13 

was  a  question  for  the  jiu*y,  as  bearing  on  the  question  of 
negligence. 

3.  That  the  vohuitary  act  of  the  cashier  in  receiving  the 
propert}'  would  not  subject  the  bank  to  liability ;  yet,  if  the 
deposit  was  known  to  the  directors  and  its  retention  acquiesced 
in,  a  contract  relationship  would  exist  and  the  bank  would  'be 
held  liable.'^ 

Property  taken  by  a  national  bank  for  safe  keeping,  where 
the  same  is  agreed  to  be  cared  for  without  compensation,  is 
only  liable  for  gross  negligenee.^*^ 

Where  the  statute  of  a  State  prohibits  a  State  bank  from 
receiving  special  deposits  from  a  city,  of  city  funds,  a  provision 
in  the  bank  charter  authorizing  the  officers  to  accept  such  de- 
posits is  a  direct  violation  of  law ;  and  a  bank  that  accepts  such 
deposits  endangers  its  charter  privileges,  and  is  subject  to  an 
action  which  may  be  brought  by  the  State  to  liave  its  charter 
forfeited.  But  where  the  Statute  is  silent  upon  the  subject, 
and  the  charter  provides  that  special  deposits  of  money  or 
property  may  be  taken  by  the  bank,  it  is  not  necessary  to 
specially  delegate  such  privilege  to  the  managers  and  officers 
of  the  bank. 

But  M'here  the  charter  is  silent  ujion  the  question,  and  there 
is  no  authority  granted  to  the  officers  through  the  by-laws 
of  the  bank  to  accept  special  deposits  of  money  or  property, 
the  bank  cashier  is  without  authority  to  accept  such  deposit. 

Where  a  charter  of  a  bank  does  not  specifically  authorize 
the  establishment  of  a  safe  deposit  department,  the  power  to 
conduct  the  same  for  special  deposits  of  property  or  money 
is  purely  incidental  to  the  business  of  banking,  and  to  what 
extent  this  authority  may  be  conducted  is  of  serious  conse- 
quence. The  Comptroller  of  the  Currency,  while  adnutting 
that  there  is  no  provision  in  the  Xational  Banking  Act,  au- 
thorizing national  banks  to  invest  any  considerable  sum  of 
money  in  the  building  of  safe  deposit  vaults  (which  may  be 
used  for  the  special  deposit  of  money  or  other  property)  holds; 
that  a  reasonable  s^um  may  be  invested  for  such  purposes,  and 

25  First  Xational  Bank  of  Carlisle  26  De    Haven    r.    Kensington    Na- 

V.  Graham,  79  Pennsylvania  State  tional  Bank,  81  Pennsylvania  State 
106,  aflTirmed  100  U.  S.  G99.  95. 


244  Deposits.  [ch.  xix. 

that  it  is  a  matter  largely  within  the  discretion  of  the  directors 
of  the  hank. 

To  what  extent  this  discretionary  power  may  be  carried  is 
not  determined  by  the  Comptroller,  and  it  is  impossible  for  him 
to  have  the  knowledge  of  the  extent  to  wdiich  it  may  be  carried 
by  the  bank. 

It  would,  therefore,  seem  to  be  a  privilege  purely  incidental 
to  that  of  banking,  and  where  not  authorized  by  the  Statute  or 
the  charter  of  the  bank,  the  limit  or  extent  to  which  the  power 
could  be  carried,  should  be  defined  by  the  proper  authority 
in  a  by-law,  as  all  incidental  powers  of  this  nature  should  be 
specified  and  governed  by  a  by-law. 

It  is  a  well  established  principle,  that  a  national  or  State 
bank  has  the  authority  and  right  to  refuse  either  general  or 
special  deposits,  and  may  arbitrarily  select  its  customers  from 
among  those  that  apply. 

AVhere  a  bank  receives  a  special  deposit  in  gold  coin  of  the 
United  States,  and  agrees  to  return  the  deposit  in  lawful  money 
of  the  United  States,  it  may  pay  in  money  which  is  current 
funds. 

It  is  held  in  the  case  of  ]\layer  and  Lowenstein  v.  The  Chatta- 
hoochee jSTational  Bank,  51  Ga.  325,  that  where  "A"  makes  a 
deposit  of  money  with  a  bank,  specifying  that  the  deposit  is 
made  for  the  express  and  special  purpose  of  paying  a  certain 
debt,  which  he  ''A,"  had  already  or  would  draw  checks  to  pay; 
that  the  deposit  became  a  special  one  and  that  it  continued  the 
property  of  "  A,"  the  debtor,  until  the  bank  paid  the  debt  or 
agreed  to  pay  it.^^ 

The  liability  of  the  bank  only  attaches  where  it  agrees  to 
see  to  the  application  of  the  money. 

§  173.  Deposits  of  paper. 

Where  cliccks  are  received  and  credited  as  cash,  the  rule  is, 
that  it  becomes  a  general  deposit.  Checks  are,  however,  gen- 
erally credited  as  casli  with  the  understading  implied,  that  if 
payment  is  refused  upon  them,  that  tlie  depositor's  account 
will  be  charged  with  the  amount.     The  credit  given  by  the  bank 

27  Owen  r.  Bowon,  4  C.  &  P.  9.1,  Of.:  Siirtoos  r.  TTnbbard.  4  Esp.  203; 
Wharton  r.  Walker,  4  B.  &  C.   Ifi.*}. 


cir.  XIX.]  Banking.  245 

upon  checks  so  deposited,  allows  the  depositor  to  draw  upon  his 
account  at  once,  and  the  bank  upon  refusal  of  the  depositor  to 
repav  the  amount  of  such,  refused  and  returned  checks,  it  is 
claimed  the  bank  would  have  no  right  of  action. 

The  rule  is  again  stated  that  where  the  title  passes  to  the 
bank,  a  general  deposit  arises,  and  when  credit  is  given  on  a 
check  deposited  and  properlv  endorsed,  the  title  passes  to  the 
bank,  and  an  implied  understanding  or  promise  to  pay  all  such 
checks  which  mav  be  returned,  lacks  the  elements  of  an  agree- 
ment upon  which  the  bank  could  sue. 

§  174.  Liabilities  of  banks  for  special  deposits. 

The  general  rule  is,  that  a  banl-  is  only  responsible  for  gross 
negligence  where  it  receives  on  special  deposit,  property  with- 
out reward.  The  Court  in  the  case  of  First  Xational  Bank  v. 
Ocean  Xational  Bank  CO  X.  Y.,  278  says: 

"  Gross  negligence  is  incapable  of  precise  definition,  and  its 
application  and  use  may  lead,  in  some  cases,  to  results  unsatis- 
factory ;  but  that  comes  as  directly  from  the  nature  and  extent 
of  the  duty  in  the  particular  case,  as  from  the  phrase  by  which 
a  breach  of  the  duty  is  expressed.  "What  constitutes  gross 
negligence,  that  is,  such  want  of  care  as  would  charge  a  bailee 
for  loss,  must  depend  very  much  upon  the  circumstances  to 
wliich  the  term  is  to  be  applied.  It  has  been  defined  to  be  the 
want  of  that  ordinary  diligence  and  care  which  a  usually  prudent 
man  takes  of  his  own  property  of  the  like  description.  This 
definition  is  given  by  a  reference  to  the  degree  of  care,  rather 
than  the  degree  of  negligence,  which  may  be  the  easier  and 
more  intelligible  mode  of  defining  the  extent  of  the  obligation, 
and  the  measure  of  duty  assumed.  Ordinary  care  as  well  as 
gross  negligence,  the  one  being  in  contrast  with  the  other, 
must  be  graded  by  the  nature  and  value  of  the  property,  and 
the  risks  to  which  it  is  exposed.  A  depositor  of  goods  or  se- 
curities for  safe  keeping  with  a  gratuitous  bailee,  can  only 
claim  that  diligence  which  a  person  of  common  sense,  not 
a  specialist  or  expert  in  a  particular  department,  should  exer- 
cise in  such  department." 

"  The  bank,  as  depository,  taking  no  pay  and  taking  no  risks, 
was  (is)  not  bound  to  resort  to  any  special  or  extraordinarv 
measures  to  protect  the  property  of  the  depositor,  and  the  negli- 


246  Deposits.  [ch.  xix. 

gence  for  which  it  could  be  charged,  or  which  was  the  proper 
subject  of  evidence  upon  the  trial,  was  only  that  which  was 
connected  with,  and  directly  contributed  to  the  loss.  Inde- 
pendent acts  of  negligence,  disconnected  with  the  loss,  were 
not  properly  admissible  in  evidence."^* 

''  The  defendant  was  not  chargeable  with  negligence  or  want 
of  care  for  not  acting  upon  facts  or  circumstances  not  coming 
to  the  knowledge  of  its  directors  or  officers.  Facts  not  brought 
home  to  them,  tending  to  show  that  the  property  was  exposed 
to  loss  from  some  unusual  cause,  to  some  peril  growing  out  of 
peculiar  circumstances,  were  not  admissible  in  evidence  against 
the  defendant.  The  bailee  Avas  only  called  upon  to  take  such 
care  as  became  necessary  to  protect  it  against  risks  known  to 
it,  or  of  which  it  had  notice.  There  was  great  latitude  in  the 
evidence  on  the  part  of  the  plaintiffs,  and  some  of  it  was  quite 
dramatic  in  its  character,  the  purpose  and  end  was  to  show  that 
the  place  of  deposit  was  peculiarly  and  extraordinarily  exposed 
to  perils  from  robbers  at  that  time,  calling  for  more  than  the 
nsual  cautions  from  the  bailee.  This  was  competent,  so  far 
as  facts  and  circumstances  proved  to  exist  were  communicated 
to  the  officers  of  the  bank,  but  no  farther." 

In  the  further  discussion  of  the  question  defining  gross 
negligence,  the  case  of  Thomas  E.  Patterson,  Respondent,  v. 
The  Syracuse  National  Bank,  Appellant,  80  JST.  Y.  82  ver^- 
clearly  defines  the  facts  which  constitute  gross  negligence. 
The  syllabi  in  said  case  is  as  follows: 

"  In  an  action  to  recover  damages  for  a  special  deposit 
alleged  to  have  been  lost  through  defendant's  gross  negligence, 
il  appeared  that  plaintiif  delivered  to  defendant's  teller,  at  its 
bank,  for  safekeeping,  a  package  containing  certain  bonds. 
Defendant  had  been  accustomed  to  receive  for  that  purpose, 
packages  supposed  to  contain  securities  and  valuables.  Some 
of  these  were  left  by  its  directors. 

"  The  cashier  of  the  bank  had  the  control  and  management 
of  its  affairs.  It  did  not  appear  that  the  president  took  any 
part  in  its  management,  or  that  the  directors  held  any  meet- 
ings. The  teller  sometimes  acted  as  cashier  in  his  absence. 
Some  time  before  the  deposit,  the  cashier  said  something  to  the 

28  Scott  V.  National  Bank  of  Chester  Vallev,  72  Pa.  St.  471. 


CH.  XIX.]  Banking.  247 

teller  as  to  their  not  taking  any  more  packages  for  safekeeping. 
The  teller  testified  that  this  was  not  a  positive  instruction,  but 
merely  an  opinion,  and  that  he  did,  after  that,  receive  packages. 
He  also  testified  that  he  told  plaintiff  when  the  deposit  was 
made,  that  it  would  be  at  his  own  risk;  this  was  contradicted 
by  plaintiff.  The  teller  also  testified  that  the  cashier  sometimes 
told  persons  depositing  packages,  that  they  would  be  at  their 
own  risk,  and  at  other  occasions,  packages  were  received  with- 
out such  notice.  The  package  so  left  by  plaintiff  was  kept  in 
defendant's  bank  for  al)out  two  years  before  its  loss,  being 
occasionally  taken  out  by  him  to  cut  off  coupons,  and  then 
returned.  Held,  that  the  evidence  justified  the  submission  to 
the  jury  of  the  question  of  the  authority  of  the  teller,  and 
whether  the  deposit  was  with  the  bank;  and,  this  having  been 
found,  that  defendant  was  bound  to  return  the  bonds  when 
demanded,  or  to  show  some  sufficient  ground  for  not  doing  so. 

"  There  was  no  direct  explanation  of  the  manner  of  the 
loss,  but  the  evidence  tended  to  show  that  the  bonds  were 
stolen  in  the  daytime,  when  the  bank  was  open.  They  were 
kept  in  a  safe,  so  placed  as  to  be  accessible  to  any  person  enter- 
ing the  bank  from  the  street,  while  those  in  the  bank  were  so 
placed  that  at  times  the  safe  was  not  in  their  view,  and  some- 
times the  door  of  the  safe  was  left  open.  Held,  that  the  evi- 
dence authorized  a  finding,  that  the  bonds  were  stolen  by  some 
one  coming  in  from  the  street;  and  that  leaving  the  property 
thus  exposed  was  gross  negligence." 

Where  there  is  neither  fraud  or  gross  negligence  imputable 
to  a  bank,  it  is  not  liable  for  loss  of  a  special  deposit,  which 
has  been  stolen  from  the  bank.  In  the  case  of  J.  D.  Whitney 
V.  The  First  Xational  Bank  of  Brattleboro,  55  Yt.  15-i,  it  is 
held  by  the  court,  that  where  a  naked  deposit  is  made  with  a 
bank,  without  reward,  that  it  cannot  be  held  liable  for  the 
robbery  or  larceny  of  bonds  deposited  with  it,  unless  there 
was  complicity  or  bad  faith;  that  the  law  demands  good  faith 
and  the  same  care  of  the  plaintiff's  property  as  defendant  took 
of  its  own  of  like  character. 

§  175.  Negligence  in  delivery  of  special  deposits. 

A  bank  holding  property  on  special  deposit  in  delivering 
the  same,  must  use  the  same  degree  of  care  as  is  required  of  it 


248  Deposits.  [ch.  xix. 

in  keeping  it  safely  on  deposit.  A  bank  is  held  liable  where 
the  teller  is  guilty  of  gross  negligence  in  failing  to  identify 
the  OAATier,  and  deli^^ers  the  property  to  one  not  the  o^^^ler. 
The  bank  would  also  be  held  liable  in  delivering  the  property 
upon  an  order  which  is  a  forgery.  In  the  case  of  Ganlcy  v. 
Troy  City  ^N'ational  Bank,  98  K  Y.  487,  the  court  held,  that 
where  ''A"  left  certain  securities  with  a  bank  for  safekeeping, 
and  for  which  the  bank  executed  a  receipt  duly  signed  by  it, 
that  said  securities  would  be  delivered  by  it  on  the  surrender 
of  the  receipt;  and  the  bank  delivered  to  ''A's  "  husband  the 
securities  without  requiring  production  of  the  receipt,  it  was 
held  that  the  bank  was  still  liable  to  "A''  the  bailor. 

In  the  case  of  Anderson  v.  Pacific  Bank,  112  Cal.  598  (44 
Pac.  1063),  the  court  holds  that  the  bailor  will  be  entitled  to 
recover  interest  on  a  special  deposit  from  the  time  the  bank 
wrongfully  refused  to  return  it. 

§  176.  Bank  deposits  received. 

At  common  law,  a  bank  has  the  authority  to  receive  or  reject 
a  deposit.  The  statute  does  not  attempt  to  regulate  this  privi- 
lege. It  is  one  incidental  to  the  rights  of  the  bank  which  can- 
not be  questioned  or  legislated  upon.  A  statute  would  be 
unconstitutional,  which  if  enacted  declaring  that  a  bank 
must  receive  on  deposit,  all  deposits  offered  to  it ;  but  a 
statute  enacted,  prohibiting  banks  from  receiving  public  funds 
(taxes  collected  from  the  people  by  municipal  authority),  and 
placing  such  funds  in  the  bank  upon  general  deposit  and  min- 
gling them  with  the  general  deposits,  may  be  prohibited  upon 
the  theory  that  they  are  trust  funds,  and  as  such,  must  be  held 
and  retained  by  the  officer  representing  the  municipality. 

The  relationship  existing  between  the  bank  and  the  depositor, 
may  at  any  time,  by  either  party  at  option,  be  dissolved.  This 
rule  holds  unless  the  bank  has  accepted  a  deposit  and  agreed 
with  the  depositor  to  retain  the  same  for  a  specific  time  and  pay 
interest  thereon  for  the  use  and  retention  of  said  deposit;  in 
such  a  case,  the  deposit  is  received  in  the  nature  of  a  special 
contract,  and  is  binding  upon  the  bank  and  the  depositor. 

A  deposit,  when  made  in  a  bank,  should  always  be  made  to 
an  agent  of  the  bank,  w^ho  at  the  time  represents  the  bank;  but 
the  deposit  need  not  necessarily  be  made  to  the  receiving  teller 


cii.  XIX.]  Banking.  249 

of  the  bank,  but  must  be  made  to  some  officer  or  agent  of  the 
bank,  who,  at  the  tmie  of  receiving  the  deposit,  represents  the 
bank.  If  made  to  a  person  claiming  to  represent  the  bank, 
when  in  fact  he  does  not,  the  bank  will  not  be  held  responsible. 
It  is  therefore  important  to  the  depositor  to  know  who  are  the 
agents  of  the  bank. 

The  rule  that  the  bank  is  not  liable,  where  an  officer  or  other 
agent  of  the  bank,  other  than  a  receiving  teller  who  has  been 
delegated  to  alone  receive  the  deposits  is  not  the  law.  Any  duly 
authorized  agent  of  the  bank  may  bind  it  by  receiving  deposits. 
A  notice  posted  in  a  bank  "  deposits  received  "  and  the  words 
"  receiving  teller  "  is  not  a  sufficient  notice  to  the  depositor  that 
no  other  officer  or  agent  of  the  bank  other  than  the  receiving 
teller,  cannot  receive  a  deposit  and  bind  the  bank.  It  has  been 
held  by  numerous  authorities,^^  that  the  cashier  is  the  proper 
officer  to  receive  deposits,  also  to  give  certificates  of  deposits; 
and  likewise  the  power  rests  with  him  to  accept  or  refuse  the 
account  of  one  desiring  to  become  a  depositor;  but  the  rule  is 
not  laid  doAvn  in  any  of  the  cases  above  cited,  that  he  is  the 
only  officer  authorized  to  receive  deposits. 

The  president  of  a  liank,  by  inherent  power,  has  the  right  to 
receive  a  deposit  for  the  bank.^° 

The  rule  is,  that  any  ar/ent  of  the  hank  who  receives  a  deposit 
from  a  customer  irithin  the  bank  durinq  hanhing  hours,  binds 
the  bank.  The  bank  cannot  set  up  a  defence  that  it  is  not 
responsible  because  the  deposit  was  not  received  or  passed 
through  the  hands  of  the  receiving  teller. 

A  deposit  is  complete  when  it  passes  from  the  possession  of 
the  depositor  into  the  hands  and  into  the  possession  of  the 
agent  of  the  bank,  if  at  the  time  of  the  transaction  it  was  per- 
formed A\4thin  the  bank  and  during  banking  hours. 

In  the  case  of  the  East  River  National  Bank,  Respondent,  v. 
Francis  X.  Gove,  Appellant,  57  IST.  Y.  597,  the  court  very  cor- 
rectly states  the  law  upon  this  subject.     The  case  is  so  replete 

29  The  ]\Ierchants'   Bank   r.   State  r.     American     Tract     Society,     123 

Bank,   10  Wall.   604;   L'Herbette  v.  Mass.     129;     Davis    r.    Old    Colony 

Pittsfield  National  Bank.  162  Mass.  Railroad.  131  Mass.  258;  Ellerbe  r. 

137,  38  N.  E.  3G8   (1894)  ;  White  v.  National   Exchange   Bank,    109   Mo. 

Franklin    Bank,    22    Pick.     (Mass.)  445. 

181;    Atlas   Bank   r.   Nahant  Bank,  30  Bicklev  r.  Bank,  43  S.  C.  528, 

3  Met.    (Mass.)    581;   Dill   v.   Ware-  21  S.  E.  886   (1892). 
ham,  7  Met.    (Mass.)   438;  Morville 


250  Deposits.  [ch.  xix. 

and  so  conchisively  sustains  the  rnle  that  any  agent  of  the 
bank  while  representing  the  bank  and  within  the  bank  and  act- 
ing during  banking  hours,  binds  it  that  we  here  quote  from 
the  opinion. 

"  There  were  in  this  bank,  besides  the  cashier  and  book- 
keepers, a  paying  teller  and  a  receiving  teller;  the  general 
duty  of  the  former  being  to  pay  the  moneys  of  the  bank,  and  of 
the  latter  to  receive  money  paid  to  or  deposited  in  the  bank. 
In  the  absence  of  the  receiving  teller,  other  clerks  and  officers  of 
the  bank  acted  in  his  place.  The  defendant  had  for  some  years 
been  a  dealer  with  the  bank,  and  he  knew  that  there  were  a 
paying  and  a  receiving  teller.  There  was  no  proof  that  the 
receiving  teller  was  in  the  bank  on  the  twenty-eighth  day  of 
August,  when  the  defendant  made  the  payment.  For  aught 
that  appears,  the  paying  teller  was  then  the  highest  officer  of 
the  bank  present.  The  defendant  had  several  times  been 
spoken  to,  to  make  the  mistake  good.  He  received  the  letter 
from  the  paying  teller  and  went  to  the  bank,  and,  upon  his 
request,  paid  him  the  money  over  the  counter.  There  was  no 
proof  that  the  paying  teller  was  not,  in  fact,  authorized  to  re- 
ceive this  money.  He  testified  that  he  was  not  accustomed  to 
receive  money  from  depositors.  But  this  payment  was  not  a 
deposit.  It  was  a  payment  of  a  debt  due  the  bank;  there  was 
no  proof  that  defendant  had  any  reason  to  believe  that  Van 
Orden  was  not  authorized  to  receive  this  money,  except  the  fact 
that  he  was  the  paying  teller.  Under  such  circumstances,  I 
hold  that  the  payment  to  the  paying  teller  was  a  good  payment 
to  the  bank. 

"  The  defendant  Avent  to  the  bank,  he  found  behind  the 
counter  the  paying  teller  who  asked  him  to  pay  a  demand  the 
bank  had  against  him,  and  he  then  paid  it.  It  would  he  a  very 
inconvenient  and  unreasonable  rule  to  hold  that  hank  wan  not 
hound  hy  such  a  payment.  If  this  payment  was  not  binding 
upon  the  bank,  it  would  not  have  been  if  Van  Orden  had  de- 
clared to  the  defendant  that  he  was  authorized  to  receive  it; 
and  if  every  clerk  then  in  the  bank  except  the  cashier  had,  upon 
the  inquiry  of  the  defendant,  made  the  same  declaration.  If 
he  had  gone  to  the  bank  to  pay  a  note  and  the  paying  teller 
had  gone  to  the  vault  and  got  the  note,  taken  the  money  and 


CH.  XIX.]  Bais'king.  251 

surrendered  up  the  note,  upon  the  same  principle  such  a  pay- 
ment would  not  have  bound  the  bank.  Banks  must  he  held  re- 
sponsible for  the  conduct  of  their  officers  within  the  scope  of 
their  apparent  authority.  \Vhen  one  goes  into  a.  hank  and  finds 
behind  the  counter  one  of  its  officers  employed  in  its  business, 
and  upon  his  demand  pays  a  deht  due  the  hank  in  good  faith, 
without  any  knowledge  that  the  officer's  authority  is  so  limited 
that  he  has  no  right  to  receive  it.  he  must  he  protected  and  the 
bank  must  he  hound  by  the  payment." 

The  rule  then  is,  as  stated  in  C^'clopedia  of  Law  and  Proceed- 
ure,  volume  five,  p.  510,  "  The  payment  of  a  deposit  to  anyone 
servifig  behind  the  counter  of  a  hank  is  valid,  and  if  he  retains 
the  money  for  his  own  use,  the  hank  is  liahle."^^ 

The  same  authority  lays  down  the  rule  that  '"'  the  same  prin- 
ciple applies  to  a  bank  whose  officers  receive  special  deposits 
of  bonds  and  other  securities."  "" 

The  rule  would  be  different  if  a  person  dealing  with  the  agent 
knew  at  the  time  that  the  agent  was  acting  \vithout  authority. 

§  177.  Kinds  of  deposits  received. 

A  special  deposit  when  authorized  to  be  received  by  a  bank, 
must  as  formerly  stated,  be  safely  kept  and  that  identical  thing 
returned  to  the  party  making  the  deposit. 

Where  a  customer  presents  to  a  bank  a  certain  amount  of 
money,  and  directs  that  it  be  received  to  be  applied  at  some 
future  date,  to  the  payment  of  a  check  specifying  it,  which 
may  be  presented,  or  to  be  used  in  the  payment  of  a  claim  whicli 
may  be  presented  against  him  (the  depositor),  such  a  deposit  is 
not  a  general,  but  a  special  deposit.  The  deposit,  although  in 
money,  cannot  be  placed  to  the  credit  of  the  depositor  and 
become  a  general  liability  of  the  bank.  It  must  be  retained 
for  the  specific  purpose  named. 


31  East  River  Xat.  Bank  r.  Gove,  (X.   Y. )    .589;    Jumper   r.   Commer- 

57   N.  Y.  .597:  Sweet  r.  Barnev,  2.3  cial   Bank.   .39   S.   C.   296,    17   S.   E. 

N.    Y.    33.5  ;    Hotchkiss    v.   Artisans'  980,  48  8.  C.  430,  26  S.  E.  725 ;  Bick- 

Bank,  2  Abb.   Dec.    (N.   Y.)    403,  2  ley   v.    Commercial    Bank,   39   S.   C. 

Keves  (N.  Y.)  564;  Ihl  r.  St.  .Joseph  281,   17  S.  E.  977,  39  Am.  St.  Rep. 

Bank,  26  Mo.  App.  129;  McCann  i:  721. 

State,  4  Nebr.  324;  Rich  r.  Xiap;ara  32  Foster    r.    Essex   Bank,    479,    9 

County  Sav.  Bank,  5  Thomps.  &  C.  Am.  Dec.  168. 


252  Deposits.  [cii.  xix. 

It  is  ad^^sal)le,  where  special  deposits  are  received  by  banks, 
to  have  a  special  deposit  book  or  ledger  for  the  purpose  of 
entries,  and  in  which  should  be  entered  the  conditions  upon 
which  each  deposit  is  received.  Where  such  a  record  is  not 
kept  bv  the  bank,  written  instructions  should  accompany  the 
deposit  directing  the  nature  of,  and  disposition  of  the  same. 

It  frequently  occurs  that  a  customer  will  deliver  to  his  bank, 
a  check  drawn  upon  some  foreign  bank,  directing  that  it  be 
lised  for  a  specific  purpose  for  example,  "  when  'A'  presents 
a  deed  accompanied  by  a  certificate  of  title  showing  the  title 
to  be  perfect  in  the  grantor  mentioned  in  the  deed;  the  money 
is  then  to  be  applied  in  payment  for  the  property  conveyed." 

Such  transactions  are  common,  and  the  deposit  of  the  check 
cannot  be  presented  and  cashed  until  the  deed  and  certificate 
of  title,  are  delivered  to  the  bank.  In  this  case,  the  bank 
cannot  1  e  held  for  failure  to  present  the  check;  but  if  the 
bank  is  instructed  to  collect  the  check  and  hold  the  money  for 
the  purpose  designated,  and  it  fails  to  present  it  for  collection 
within  a    reasonable  time,  the  bank  may  be  held  liable. 

If  such  a  deposit  is  made,  and  the  bank  accepts  the  conditions 
it  will  be  held  as  by  a  contract  and  must  comply  witli  the  same. 

The  court  holds,  in  the  ease  of  American  National  Bank  v. 
Presnall  (48  Pac.  556),  that  where  a  check  was  delivered  to 
the  cashier  of  the  bank,  and  for  which  he  gave  a  writing  as 
follows:  "  Deposited  ^vith  American  Xational  Bank,  Arkansas 
City,  Kansas,  by  J.  K.  Presnall,  October  18th,  1890,  $22,200, 
to  be  delivered  to  Presnall  upon  clear  abstract  of  property^ 
on  deeds  left  with  me.     H.  M..  Lamsen  C." 

It  was  shown  by  the  evidence,  that  the  document  signed 
"  11.  Lamsen,  C  "  was  executed  by  the  cashier  in  his  official 
capacity,  and  that  in  fact  he  only  received  a  check.  In  con- 
struing the  document  the  court  says,  "  In  effect  it  is  stated  that 
the  deposit  is  made  with  the  hank ;  thai  the  deposit  is  money  and 
not  a  check." 

As  stated  in  this  case,  a  check  was  deposited,  but  the  bank 
through  its  cashier,  acting  in  his  official  capacity,  gave  a  "  de- 
posit slip "  showing  upon  its  face  that  money  was  deposited 
and  the  court  contended  that  the  bank  was  held  by  the  docu- 
ment and  must  make  good  the  amount  in  money. 


en.  XIX.]  Banki:s"g.  253 

In  receiving  a  check,  as  a  special  deposit,  the  bank  may  elect 
to  collect  the  same  and  hold  the  money  in  its  place,  if  not  other- 
wise specifically  instructed;  bnt  in  such  a  case,  the  bank  cannot 
open  an  account  in  the  name  of  the  party  depositing  the  check, 
but  must  retain  and  hold  the  money  to  execute  the  trust  and 
purpose  for  which  it  is  to  be  used. 

Where  a  clerk  of  a  Court  of  Record,  under  order  of  the 
court,  deposits  money  in  a  bank  and  the  money  is  mingled  with 
and  becomes  a  part  of  the  common  fund,  and  the  bank  be- 
comes a  debtor  therefor,  the  deposit  is  general. 

"  If  the  deposit  had  been  placed  in  a  separate  package  and 
so  deposited  and  never  mingled  with  the  funds  of  the  bank; 
or  had  it  been  so  kept  that  its  identity  could  be  established, 
it  would  no  doubt  have  been  different." 

A  special  deposit  may  be  changed  to  a  general  one  or  vice 
versa,  for  example,  ''A"  may  deposit  a  note  Avith  a  bank  for 
collection,  while  the  note  remains  unpaid  it  assumes  the  nature 
of  a  special  deposit,  to  be  returned  if  not  collected;  but  after 
collection,  the  proceeds  may  be  in  the  absence  of  other  instruc- 
tions, placed  to  the  credit  of  the  owner.  It  then  becomes  a 
general  deposit. 

In  California  it  is  held  in  Howard  v.  Roeben,  33  Cal.  399, 
that  where  one  makes  a  special  deposit  of  gold  coin  and  after- 
ward contracts  with  the  bailee  to  pay  interest  on  the  same, 
the  special  deposit  is  turned  into  a  general  one. 


CHAPTER  XX. 


DEPOSITS  REPAID. 

§  178.  When  and  how  paid. 

A  general  deposit  of  money  when  made  and  placed  to  the 
credit  of  the  depositor,  from  that  time  becomes  a  debt  due 
from  the  bank  to  the  depositor,  and  unless  a  stipulated  time  is 
agreed  upon  between  the  depositor  and  the  bank  when  the  de- 
posit is  to  be  repaid,  the  law  implies  a  liability  npon  the  part 
of  the  bank  for  its  repayment  to  the  depositor  at  any  time 
when  demand  is  made. 

It  is  not  necessary  that  the  depositor  should  have  a  contract 
or  agreement  in  writing,  executed  by  the  bank,  agreeing  to 
repay  the  same.  The  entry  of  his  deposit  in  a  book  furnished 
by  the  bank  showing  its  liability  to  the  depositor  is  sufficient. 

It  is  a  presumption  of  law,  that  when  money  is  deposited 
in  a  bank  and  credit  is  g-iven  in  the  name  of  the  party  deposit- 
ing the  same,  that  it  belongs  to  the  party  making  the  deposit, 
and  the  Lank  is  justified  in  honoring  the  check  of  the  party 
making  such  deposit.  A  third  party  may  make  a  claim  of 
ownership  to  the  funds,  but  a  simple  claim  or  notice  to  the 
bank  verbally  made  by  the  claimant  that  such  funds  when  de- 
posited in  the  name  of  another,  are  his  funds  or  property, 
cannot  be  construed  by  the  law  as  a  sufiicient  notice  to  the 
bank,  and  as  a  justification  of  its  right  or  refusal  in  the  pay- 
ment of  checks  signed  and  presented  by  the  depositor.  But  if 
the  bank  has  been  enjoined  by  process  of  law  from  paying  such 
funds  to  the  depositor,  it  may  refuse  to  pay  the  same  until  the 
injunction  is  dissolved. 

Where  deposits  are  made  in  the  name  of  a  firm,  complica- 
tions may  arise  in  the  payment  of  checks,  especially  so,  if  the 
bank  should  pay  out  money  upon  the  individual  check  of  one 
member  of  the  firm.  If  this  is  done,  and  the  firm  should 
claim  that  the  funds  withdrawn  were  withdrawn  without  au- 
thority, the  bank  can  only  justify  its  action  by  proving  that 
the  money  drawn  by  the   individual   nunnber  was  applied  to 

[254] 


cir.  XX.]  Baxkixg.  255 

the  use  of  the  firai.  To  avoid  such  danger  and  complications, 
it  is  advisable  that  the  bank,  when  such  an  account  is  opened, 
and  before  checks  are  paid,  require  the  firm  to  empower  some 
one  member  thereof  to  draw  and  sign  checks  in  the  name  of 
the  firm,  upon  the  account  in  the  bank.  The  power  of  at- 
torney, authorizing  this,  being  filed  with  the  bank  would 
establish  the  right  of  the  party  to  draw  checks  and  relieve  the 
bank  from  all  complications  and  liability. 

Savings  banks  have  two  classes  of  deposits,  ordinary  and 
term.  The  ordinary  deposit  is  somewhat  in  the  nature  of  a 
commercial  deposit.  It  may  be  one  wherein  the  bank  will 
agree  to  repay  up  to  a  certain  sum  or  fixed  amount  on  demand 
and  without  notice.  AYhen  this  rule  or  agreement  is  entered 
into  between  the  parties,  interest  upon  the  sums  are  generally 
waived. 

The  depositor  in  a  savings  bank,  however,  where  his  deposit 
is  classed  as  ordinary,  is  governed  by  the  same  law  in  relation 
to  his  rights  and  claims  against  the  bank  in  case  of  insolvency, 
or  liquidation,  and  is  placed  in  the  same  position  as  the  term 
depositor. 

But  the  law  is  well  established  that  before  an  action  can  be 
maintained  by  a  depositor  against  the  bank,  he  must  first  have 
made  a  demand  upon  the  bank  for  repayment.  This  demand 
may  be  in  the  presentation  of  a  check  signed  by  the  depositor 
against  his  account  held  by  the  bank. 

A  depositor's  account  or  deposit  in  the  bank  remains  a  lia- 
bility against  the  bank  until  the  statute  of  limitations  bars  a 
right  of  action.  In  some  of  the  States  the  statute  will  not 
run  against  the  depositor.  The  depositor  is  not  entitled  to 
interest  upon  his  deposit  made  in  a  commercial  bank,  unless 
by  special  contract  entered  into  by  the  bank,  interest  is  agreed 
to  be  paid;  and  it  seems  to  be  a  well  settled  principle  of  law 
upon  this  subject  that,  unless  the  by-laws  of  the  bank  author- 
ize interest  to  be  paid  to  depositors,  that  the  officers  of  the 
bank  who  enter  into  such  contracts  with  depositors  without 
first  having  such  authority  from  the  board  of  directors,  have 
violated  certain  principles  of  banking,  and  as  between  them- 
selves and  the  bank,  are  personally  liable.  It  is  not  claimed, 
however,  that  as  between  the  depositor  and  the  bank  that  the 
bank  would  not  be  held  liable. 


256  Deposits  Repaid.  [ch.  xx. 

If  certificates  of  deposit  have  been  issued  and  a  specified  time 
agreed  upon  when  the  money  should  be  repaid,  the  depositor 
cannot  demand  repayment  of  the  same  before  the  expiration 
of  the  time;  neither  can  the  bank,  upon  the  other  hand,  pay 
the  depositor  upon  such  certificate  before  its  maturity  for  the 
purpose  of  evading  the  agreement  to  pay  interest  on  the  same. 

A  term  deposit  is  one  wherein  it  is  generally  stipulated  be- 
tween the  parties  by  contract,  that  the  same  shall  be  withdrawn 
from  the  bank  only  upon  notice  duly  served.  This  notice 
when  given,  if  the  by-laws  require  it,  must  be  in  writing, 
specifying  that  the  depositor  demands  repayment  of  his  deposit 
within  the  time  which  the  bank  stipulated  to  repay  the  same. 
Banks  may  repay  without  notice,  electing  to  waive  the  same, 
but  they  have  a  right  where  such  contracts  have  been  entered 
to  demand  notice  before  repayment.  Savings  banks 
through  their  by-laws  when  properly  enacted,  can  fix  the  time 
required  to  be  given  by  a  depositor  before  the  withdrawal  of 
his  money,  his  right  to  withdraw  the  same  being  a  contract 
between  the  parties,  and  before  withdrawal  he  must  comply 
with  the  terms  of  the  agreement  and  the  by-laws. 

It  is  unnecessary  to  state  that  a  bank  cannot  pay  out  its 
funds  held  for  one  on  deposit  upon  an  oral  order.  It  can  do 
so,  but  in  doing  so  it  is  done  at  its  risk.  Money  paid  upon  an 
oral  order,  the  payment  may  be  denied  by  the  heirs  after 
death,  and  the  court  would  exclude  the  proof  if  offered  by  the 
bank,  of  such  payment.  The  usages  of  the  banking  business 
entitle  it  to  written  evidence  of  money  paid  by  it. 

A  general  depositor  of  funds  in  a  bank,  having  claimed 
that  he  deposited  certain  money,  is  not  entitled  in  repayment 
to  the  particular  kind  of  money  deposited,  unless  in  case  of  a 
special  deposit.  A  depositor,  however,  when  the  deposit  made 
by  him  is  in  current  fimds,  at  the  time  of  repayment,  may  in- 
sist that  he  shall  receive  in  return  current  funds.  And  this 
is  held  to  be  the  case,  although  the  funds  deposited  have  in 
the  meantime  depreciated.  "Where  deposits  are  made  in  de- 
preciated funds  and  credit  is  given  to  the  depositor  in  current 
funds,  the  depositor  is  entitled  on  withdrawal  of  the  same  from 
the  bank,  to  be  paid  in  funds  which  are  current.  The  bank  at 
the  time  of  the  transaction  should  note  the  fact  in  accepting 


CH.  XX.]  Banking.  257 

the  funds  that  they  were  not  current  funds,  if  it  desires  to 
protect  itself  at  the  time  of  payment. 

This  subject  is  further  discussed  under  chapter  treating  on 
Duties  of  Paying  Teller. 

§  179.  Bank  may  refuse  payment  of  deposit  when. 

A  bank  may  refuse  to  honor  and  pay  out  deposits  on  a  check 
when  defects  appear  upon  the  face  of  the  check.  If  the  bank 
questions  the  genuineness  of  the  signature  its  duty  is  to  at 
once  give  notice  to  the  owner  of  the  deposit  that  payment  is 
withheld  for  that  reason. 

A  bank  may  be  deceived  as  to  the  genuineness  of  a  signa- 
ture, and  refuse  to  pay  a  check  where  the  signature  is  genuine, 
and  when  refusal  is  based  upon  that  ground  and  with  a  motive 
to  protect  the  deposit,  or  against  fraudulent  checks  and  signa- 
tures, the  law  would  not  hold  the  bank  liable  in  damages. 

A  bank,  before  payment  of  a  check,  is  entitled  to  time  in 
which  to  examine  its  books,  and  ascertain  from  them  whether 
the  amount  demanded  by  the  check  is  then  a  balance  due  the 
depositor.  This  may  require  the  examination  by  a  clerk  of 
all  checks,  drafts  and  other  orders  which  may  have  been  during 
the  day,  previously  presented  and  charged  to  his  account. 
The  bank  may  take  time  to  strike  a  balance  from  the  books 
of  the  depositor's  account,  and,  if  in  ease  of  a  run  on  the  bank, 
a  depositor  presents  his  check  which  purports  to  be  for  the 
balance  tlien  due  him;  demanding  that  he  be  paid  his  balance 
in  full,-  the  bank  is  entitled  to  a  sufficient  time  in  which  to 
balance  the  account  of  the  depositor  before  payment  of  the 
check.  This  requires  time  in  which  to  enter  the  checks  and 
deposits  for  the  day  upon  the  books  of  the  bank  and  the  de- 
positor's pass-book,  and,  when  balanced,  if  the  check  as  drawn, 
is  for  the  correct  amount  of  the  balance,  it  must  then  be  im- 
mediately paid.  When  a  "  run  "  is  on  against  the  bank,  it 
is  not  required  to  call  in  or  retain  extra  assistance  for  the 
purpose  of  rapidly  facilitating  such  settlements  to  accommo- 
date a  customer,  but  it  may  proceed  in  its  customary  and  or- 
dinary way  of  doing  business. 

A  bank  must  pay  checks  in  the  order  in  which  they  are 
presented.  Where  two  or  more  paying  tellers  are  employed, 
checks  may  be  presented  to  each  paying  teller  simultaneously, 
17 


258  Deposits  Repaid.  [cu.  xx. 

and  to  prevent  confusion  or  preference  in  payment,  the  pay- 
ing teller  is  entitled  to  time  to  examine  the  debits  and  credits 
of  the  depositor,  and  by  so  doing,  the  order  of  payment  may 
be  fixed. 

The  question  of  M'hat  is  a  reasonable  time  in  which  accept- 
ance and  payment  should  be  made  is  one  of  fact  to  be  deter- 
mined by  the  court  when  brought  into  issue. 

A  check  may  be  paid  when  presented,  by  giving  the  o\vner 
credit  therefor  upon  his  account,  or  it  may  be  paid  in  money; 
or  it  may  be  paid  by  substituting  a  draft  drawn  upon  some 
other  banking  institution,  for  the  amount,  or  it  may  be  turned 
into  a  certificate  of  deposit,  made  payable  by  the  bank  at  some 
future  date;  or  as  stated,  it  may  be  paid  by  the  cancellation 
or  discharge  of  a  debt  owing  by  the  depositor  to  the  bank. 
When  a  check  is  surrendered  and  a  substitution  takes  place, 
for  example,  when  a  draft  or  certificate  of  deposit  is  issued  in 
a  subsequent  suit,  if  it  should  arise,  the  suit  should  be  brought 
upon  the  new  instrument. 

A  check  in  effect  is  also  paid  where  a  certification  of  it  by 
the  bank  takes  place.  The  check  is  immediately  charged  to 
the  drawer's  account  and  the  bank  becomes  from  that  date, 
liable  to  the  bona  fide  holder.  The  drawer  is  discharged  and 
the  bank  at  once  becomes  the  debtor  to  such  holder.  "When 
a  certified  check  passes  by  endorsement  to  a  bona  fide  indorser, 
the  bank  cannot  set  up  error,  but  must  pay.  It  cannot  be 
revoked. 

"When  a  check  is  not  dated  it  is  sufficient  to  put  the  bank 
upon  inquiry.  The  bank  may  refuse  to  pay  an  undated  check 
and  before  payment  require  that  the  date  be  inserted,  and  it 
is  held  that  the  payee  may  insert  the  true  date. 

It  is  also  claimed  that  an  undated  check  is  never  payable, 
and  a  date  WTitten  in  not  the  true  date,  of  the  check  is  a 
material  alteration  of  its  terms  such  as  would  destroy  its 
validity.^ 

Held  that  "  whenever  the  legal  rights  and  liabilities  of  a 

maker  of  commercial  paper  are  changed,  in  a  material  respect, 

by   fraudulent    alteration    of   the    obligation,    such    alteration 

vitiates  the  instrument  and  the  question  whether  it  is  material 

or  not  is  one  of  law  for  the  court." ^ 

1  Crawford    v.    West    Side    Bank,  2  Crawford    r.    West    Side    Bank, 

100  N.  Y.  50.  100  X.  Y.  .56,  and  cases  cited. 


cii.  XX.]  Banking.  259 

A  payment  by  the  bank  of  a  check  where  it  is  changed  so 
that  by  such  change  the  obligations  are  altered,  makes  the 
bank  liable. 

A  banker  may  pay  to  a  depositor  his  deposit,  npon  an  oral 
order  as  previously  stated,  but  in  doing  so  it  takes  all  the  risk 
of  the  depositor  repudiating  the  transaction,  and  death  may 
also  complicate  the  position ;  the  representatives  denying  the 
payment,  the  burden  of  proof  would  then  be  on  the  bank  to 
show  that  payment  was  made. 

"  It  has  been  said  that  a  depositor  can  demand  his  deposit 
without  a  Avritten  order." ^ 

The  bank  may  and  frequently  does  pay  on  telegraphic  in- 
structions, and  in  doing  so  it  is  not  liable  to  the  sender  if  the 
message  received  does  not  conform  in  amount  to  the  original.. 
The  sender  may  hold  the  company  transmitting  the  message 
for  error,  but  as  between  the  bank  and  the  owner  of  the  de- 
posit, it  is  not  liable. 

A  person  having  a  deposit  in  a  bank  and  becoming  insane, 
and  during  insanity  issuing  his  check  which  is  paid  by  the  bank 
after  knowledge  of  insanity,  is  not  payment;  hut  if  it  pays  in 
good  faith,  without  the  knowledge  of  such  insanity,  it  will  be 
protected.^ 

Where  the  amount  of  money  named  in  the  check  is  written 
out  in  full  and  which  differs  from  the  amount  specified  by  the 
figures,  the  writing  prevails  over  the  figures. 

This  subject  is  further  treated  in  the  chapter  on  checks. 

§  180.  Payment  of  trust  funds. 

In  the  leading  case  of  Hatch  v.  Johnson  Loan  and  Trust 
Company,  79  Fed.  Rep.  828,  the  court  says: 

"  A  bank  cashier  or  teller  may  pay  out  a  check  of  a  corpora- 
tion when  it  is  dra-vvn  in  the  usual  course  of  business;  and 
there  are  no  circumstances  of  suspicion  to  put  him  in  inquiry 
without  instituting  a  preliminary  inquiry  as  to  what  is  to  be 
the  destination  of  the  money  drawn  before  the  check  is  honored. 

SMcEwin  r.   Davis,  39  Ind.   109;  24  So.  .526;   NeflF  v.  Green  Co.  Nat. 

Ellis  V.  Woodsocker  First  Nat.  Bank,  Bank.  89  Mo.  581. 

22  R.  I.  565,  48  Atl.  936 ;   Watts  r.  *  Riley   v.  Albany   Savings   Bank, 

Christie,    11    Beav.   551;    Cambridge  36  Hun  (N.  Y.)  513. 
First  Nat.  Bank  r.  Hall,  119  Ala.  64, 


200  Deposits  Eepaid.  [ch.  xx. 

llie  bank  was  bound  to  pay  the  check  when  drawn  by  the  Com- 
pany in  the  usual  course  of  the  company's  business." 

The  opinion  of  the  Supreme  Court  of  the  State  of  Illinois 
in  the  case  of  the  State  National  Bank  v.  James  Reilly,  12-i  111. 
464,  is  in  direct  line  mth  the  doctrine  laid  down  by  the  district 
judge  in  the  Federal  case  above  cited. 

The  rule  is,  ivlieve  a  hanl'cr  lias  l-nowledcje  of  the  fact  that 
a  breach  of  trust  is  going  to  he  perpetrated  upon  the  trust  fund, 
and  he  participates  in  such  fraud,  the  Jjank  is  liable  for'  such 
misappropriation  and  the  true  owner  can  recover. 

Where  a  public  officer,  a  United  States  postmaster,  deposits 
money  in  a  bank  in  his  official  capacity  and  executes  his  checks 
in  such  capacity  and  withdraws  the  funds  applying  them  to 
his  personal  purposes,  the  bank  would  not  be  responsible 
"unless  it  had  actual  or  constructive  knowledge  of  the  unlawful 
intention  and  purpose  of  the  postmaster  when  the  checks  were 
drawn  or  presented  and  paid/'^ 

Where  a  bank  has  full  knowledge  of  the  trust,  it  must  pro- 
tect it  to  the  extent  of  refusing  the  payment  of  checks  where 
the  funds  are  to  be  used  to  the  loss  and  injury  of  the  real  owner. 

Money  deposited  by  the  husband  in  his  wife's  name  does  not 
give  him  the  authority  to  withdraw  it.  The  fact  that  he  de- 
posited the  money  as  an  agent  does  not  make  him  an  agent  to 
withdraw  it;  and  he  has  no  authority  to  execute  checks  in  his 
'U'ife's  name,  signing  the  same  as  agent. ^ 

Deposits  in  all  instances  can  be  withdrawn  by  the  real 
o"v\mer.  It  frequently  occurs  that  deposits  have  been  made  by 
mistake  and  an  "  account  opened  "  in  the  name  of  a  person  who 
is  not  the  real  o^vner  of  the  funds.  When  the  bank  is  fully 
satisfied  that  the  account  has  been  opened  and  credit  given  to 
the  wrong  person,  it  may  of  its  own  action,  change  the  account 
and  place  the  deposit  to  the  credit  and  in  the  name  of  the  real 
owner;  but  where  the  bank  is  ignorant  of  any  mistake  and  a 
deposit  has  been  made  in  the  name  of  a  party  who,  in  fact,  is 
not  the  o^\^ler  or  entitled  thereto;  and  pays  a  check  executed  by 
the  party  shown  by  the  books  of  the  bank  as  the  owner,  the 
bank  is  not  liable. 

A  deposit  may  be  made  by  a  person  under  ago  in  his  own 

5  United  States  V.  Nat.  Bank,  73  6  Bates    v.    First    Nat.    Bank    of 

Fed.  Rop.  379.  Brockport,  89  N.  Y.  286. 


en.  XX.]  BAXKI^'G.  261 

name,  and  he  may  execute  checks  and  withdraw  the  same  (un- 
less a  statute  to  the  contrary  intervenes),  and  the  bank  will  be 
protected.  But  upon  notice  given  to  the  bank  by  the  parent 
or  guardian  that  such  funds  are  claimed,  the  bank  may  refuse 
payment  of  the  minor's  cheeks. 

A  bank  may  be  estopped  from  the  payment  of  a  deposit  by 
process  of  law,  for  example  —  the  deposit  may  be  attached  or 
garnisheed.  When  the  court  issues  a  writ  and  the  same  is 
served  upon  the  bank,  the  bank  must  respect  and  obey  the  notice 
and  refuse  to  pay  until  the  proceedings  are  determined. 

The  death  of  a  depositor,  when  known  by  the  bank,  estops 
the  bank  from  payment  of  checks  though  delivered  to  the  payee 
by  the  maker  thereof  prior  to  death. 

The  rule  is,  that  the  death  transfers  the  deposit  to  his  per- 
sonal representatives,  and  a  hank,  having  the  knowledge  of  the 
death  and  which  afterward  pays  checks,  does  so  at  its  peril. 

The  statutes  of  some  States,  however,  provide  that  tlie  per- 
sonal representatives  may  draw  upon  the  account  of  the  de- 
ceased in  a  certain  sum  before  letters  of  administration  are 
granted. 

The  bank  is  also  estopped  from  making  payment  after  notice 
of  insolvency  and  assignment  by  the  depositor.  The  assign- 
ment transfers  the  deposit  to  the  assignee  for  the  benefit  of  all 
the  creditors. 

If  the  bank  honors  the  check  before  notice  to  it  of  assign- 
ment, it  is  protected. 

"Where  the  bank  has  a  claim  or  debt  due  it  from  the  depositor, 
it  may  set  off  the  deposit  (if  done  before  the  death  of  the 
maker)  as  against  such  debt,  and  this  operation  acts  as  a  with- 
drawal of  the  deposit. 

The  deposit  must  belong  to  the  del)tor  in  his  own  right. 
The  bank  cannot  apply  trust  funds  in  this  way,  and  even  after 
the  application  is  made,  if  it  is  shown  that  the  deposit  belonged 
to  someone  else,  the  court  will  order  the  bank  to  return  the 
same  to  the  rightful  owner. 

Where  a  debt  is  secured,  the  bank  has  no  authority  to  apply 
the  deposit  in  payment  of  such  a  debt.  Also  after  notice  of 
death,  a  bank  has  no  right  to  apply  the  deposit  standing  in  the 
name  of  the  deceased,  to  the  payment  of  his  debt  though  the 
debt  be  due  and  acknowledged. 


CHAPTER  XXI. 


CHECKS. 
§  181.  Defined. 

BoiiTier's  Law  Dictiouarv  defines  a  check  to  be: 
"  A  -written  order  or  request  addressed  to  a  bank  or  persons 
carrying  on  the  business  of  banking,  by  a  party  having  money 
in  their  hands,  desiring  them  to  pay,  on  presentment,  to  a 
person  therein  named,  or  bearer,  or  to  such  person,  or  order, 
a  named  sum  of  money.'' 

Xorton  on  Bills  and  Xotes,  defines  a  check  as  follows: 
"A  check  is  a  draft  or  order  on  a  bank  or  banker,  purport- 
ing to  be  drawn  on  a  deposit  of  funds,  for  the  payment,  at  all 
events,  of  a  certain  sum  of  money  to  a  certain  person  therein 
named,  or  to  him  or  his  order,  or  to  bearer,  and  payable 
instantly  on  demand." 

There  is  no  essential  difference  in  the  definition.  Bouvicr 
defines  it  to  be  a  written  order  or  request  addressed  to  a  bank 
or  banker  by  a  party  having  money  in  their  hands,  requesting 
them  to  pay  on  presentment,  to  a  person  named,  or  bearer,  a 
fixed  sum  of  money. 

A  form  of  the  written  instrument  commonly  used  is  in  the 
words  and  figures  as  follows: 

No "  Pasadena,  California.  .Jan.  1st,  1906. 

SAN  GABRIEL  VALLEY  BANK. 
Pay  to  the  order  of  Robert  J.  Burdett  .$100,000.00 

One  Hundred  Thousand  DoHars." 

"  Frank  C.  Bolt." 

The  form  of  the  check  presents  a  very  accurate  definition. 
It  is  a  written  instrument  dated,  addressed  to  a  bank,  directing 
ii  to  pay  to  a  person  named  therein  or  to  his  order  (or  bearer), 
a  fixed  sum  of  money,  and  is  signed  by  the  drawer. 

The  requisites  of  a  check,  are  that  it  shall  be,  first,  dated, 
second,  it  must  be  drawn  on  a  bank;  third,  it  must  be  payable 
to  a  person  named  to  order  (or  bearer);  fourth,  it  must  specify 
a  certain  sum  of  money  to  be  paid;  fifth,  it  must  be  signed  by 
the  drawer. 

[202] 


cii.  XXI.]  Banking.  263 

If  it  is  defective  in  any  one  of  these  requisites,  it  is  an 
imperfect  instrument  and  may  be  refused  when  presented  to  the 
bank  for  payment. 

A  check,  being  an  order  on  a  bank  to  pay  a  certain  sum  of 
money,  is  a  direction  to  the  bank  to  charge  the  drawer's  account 
with  the  sum  named  therein. 

§  182.  A  check  must  be  dated. 

If  a  check  has  no  date,  it  has  no  definite  time  for  payment. 
A  check  is  only  payable  on  the  day  of  its  date  or  on  a  day  a 
future  date,  or  at  the  time  of  presentment  subsequent  to  its 
date.  The  bank,  therefore,  if  a  check  is  not  dated  has  no  direc- 
tion when  to  pay  or  charge  the  drawer's  account;  but  a  bank 
may  pay  a  check  without  risk  and  without  a  date  when  pre- 
sented by  and  payable  to  the  drawer  himself.  A  bank  may 
pay  to  a  customer  his  deposit  in  full,  at  any  time  without 
direction  or  authority  in  writing  from  the  depositor,  upon  the 
ground  that  the  bank  can  select  its  customers,  receive  deposits 
and  repay  them  at  any  time.  Therefore,  it  may  close  the  ac- 
count with  the  depositor  by  payment  in  lawful  funds  at  any 
time  without  being  requested  to  do  so;  and  a  check  in  such  a 
case,  is  not  required  as  an  evidence  of  authority.  But  the  bank 
cannot  charge  the  depositor's  account  with  a  sum  of  money, 
which  sum  is  to  be  paid  to  or  transferred  to  the  account  of 
another,  without  direction  or  authority  in  writing;  and  this 
authority  must  be  dated  and  signed  by  the  party  to  be  charged. 

The  date  is  important,  as  stated,  because  it  fixes  accurately 
the  time  in  which  payment  may  be  demanded.  It  is  not  due 
until  a  date  is  fixed.  If  it  fails  to  bear  a  date,  the  bank  is  at 
once  put  upon  inquiry  and  may  refuse  payment  upon  the  special 
ground  that  the  check  not  being  dated,  no  time  of  payment  is 
fixed. 

Checks  are  either  payable  on  demand  or  at  a  date  fixed  in  the 
future. 

In  the  case  of  Crawford  v.  Westside  Bank,  2  N.  E.  881,  the 
court  says: 

"  In  the  present  case,  the  plaintiff,  on  the  twentieth  of  April, 
intending  to  be  absent  from  his  place  of  business  for  a  few  days, 
drew  his  check  on  the  defendant,  dated  April  22d,  for  $700, 
payable  to  his  clerk,  one  Morgan,  for  the  purpose  of  enabling 


-64  Checks.  [ch.  xxi. 

him  to  obtain  funds  to  pav  Avages  becoming  dne  to  the  drawer's 
employees  on  the  2 2d.  The  cheek  was  left  in  the  drawer's 
check-book,  in  his  safe,  with  directions  to  Morgan,  who  had  a 
key  to  the  safe,  to  take  the  check  on  the  22d,  draw  the  money, 
and  deliver  it  to  his  foreman  to  pay  ont  to  the  employees  in  case 
the  drawer  did  not  return  before  noon  upon  that  day.  The 
plaintiif  did  not  return  until  after  the  time  appointed;  but  on 
the  21st,  Morgan  took  the  check,  and,  having  altered  the  date 
to  the  21st,  drew"  the  money  from  the  bank,  and  absconded  with 
the  funds  on  the  same  day. 

"  The  check,  as  drawm,  conferred  no  authority  on  the  bank 
to  pay  the  amount  for  which  it  was  drawn  out  of  the  plaintiif's 
funds  before  its  date.-^ 

'*  Such  payment  did  not,  therefore,  justify  the  bank  in  charg- 
ing the  check  to  the  plaintiff.  The  bank,  undoubtedly,  had  the 
same  right  as  any  other  person  to  purchase  a  post-dated  check, 
and  enforce  payment,  however,  depended  upon  the  question  as 
to  wdiether  the  purchaser  became  a  bona  fide  holder  of  the  paper, 
and  also  wdiether  it  was  then  a  valid  obligation  of  the  maker. 
A  material  alteration  of  its  terms,  after  execution  and  before 
payment,  w^ould  destroy  its  validity.  A  change  in  its  date, 
u'herehj/  the  time  of  its  payment  was  accelerated  was  undoiiht- 
edli/  sucli  an  alteration. 

"  Thus,  it  was  held,  in  the  case  of  Vance  v.  Lowther,  1  Exch. 
Div.  170,  where  the  date  of  a  chock  had  been  altered  from 
March  2d  to  March  26th,  and,  as  thus  altered,  was  attempted 
to  be  enforced  against  the  drawer  by  one  wdio  had  paid  value 
to  an  unlawful  holder  for  it,  that  such  alteration  vitiated  the 
check,  and  no  recovery  could  be  had  thereon." 

The  fact  that  a  check  is  not  dated  or  that  the  date  is  changed 
as  stated,  would  put  the  bank  on  inquiry,  and  it  has  been,  held 
that  an  undated  check  is  never  payable. 

§  183.  It  must  be  drawn  on  bank. 

The  Su])reme  Court  of  the  United  States,  in  distinguishing 
a  check  with  a  bill  of  exchange,  says  that  a  check  is  always 
drawn  on  a  bank  or  banker;  while  a  bill  of  exchange  is  not. 


1  Godin  V.  Bank  of  the  Common-       r.   Broderick.   10   Wend.   304 ;    S.   C. 
wealth,  6  Duer,  76;  Mohawk  Bank      13  ^^'end.  133. 


cii.  XXI.]  Baxking.  265 

It  is  ahvays  necessary  that  the  drawee  be  designated  as  a 
banker,  so  that  the  instrument  "will  not  l)e  construed  as  a  bill  of 
exchange. 

The  Supreme  Court  of  the  United  States,  in  defining  the 
difference  savs: 

"  The  chief  differences  are,  that  a  check  is  ahvays  drawn  on 
a  bank  or  a  banker.  ISTo  days  of  grace  are  allowed.  The 
drawer  is  not  discharged  by  the  laches  of  the  holder  in  pre- 
sentment for  payment,  unless  he  can  show  that  he  has  sus- 
tained some  injury  by  the  default.  It  is  not  due  until  payment 
is  demanded,  and  the  Statute  of  Limitations  runs  only  from 
that  time.  It  is,  by  its  face,  the  appropriation  of  so  much 
money  of  the  drawer  in  the  hands  of  the  drawee  to  the  pay- 
ment of  an  admitted  liability  of  the  drawer. 

"  It  is  not  necessary  that  the  drawer  of  the  bill  should  have 
funds  in  the  hands  of  the  drawee.  A  check,  in  such  a  case, 
would  be  a  fraud." 

The  court  further  says  that  a  check  is  never  presented  for 
acceptance  but  only  for  payment. 

§  184.  Check  must  be  payable  to  a  person  named  or  to  his  order 
or  to  bearer. 

A  check  failing  to  designate  a  payee,  pr  to  designate  him 
wdth  sufficient  certainty,  it  is  claimed,  Avill  render  the  check 
void. 

A  check  payable  to  a  person  named  is  a  negotial)le  instru- 
ment and  may  be  transferred  simply  by  the  payee  indorsing  his 
name  on  the  back  or  on  the  face  of  the  check. 

It  is  held,  that  where  a  check  is  drawn  payable  to  a  fictitious 
person  or  to  a  name  or  figure,  as  for  example  "  1905  "  or  a 
word  "  rent "  is  in  law  regarded  as  payable  to  bearer,  and  is 
transferable  on  delivery. 

§  185.  A  check  must  be  for  the  payment  of  a  certain  sum  of 
money. 

Daniels  on  Xegotiable  Instruments,  3d  Edition,  §  1570, 
says,  ''  In  this  respect  it  does  not  differ  from  other  negotiable 
instruments,  and  though  perhaps  it  still  might  be  termed  a 
check,  although  not  paid  in  money,  by  Avhich  is  meant  the  legal 
tender  currency  of  the  country,  it  would  certainly  not  be  nego- 


2GG  Checks.  [ch.  xxi. 

tiable  if  expressed  to  he  payable  in  '  bank  bills,'  or  '  in  cur- 
rency,' or  if  it  lacked  words  of  negotiability,  or  were  deficient 
in  any  of  the  characteristics  in  respect  to  certainty  in  fact  and 
time  of  payment  and  party  to  whom  payment  is  to  be  made." 

In  the  case  of  Bank  of  Mobile  v.  Brown,  42  Ala.  108,  where 
an  action  is  on  a  bank  check  by  the  indorsee  against  the  drawer, 
it  is  held  by  the  court,  that  a  bank  check  payable  in  Confederate 
currt  ney  is  not  an  instrument  payable  in  money. 

§  186.  A  check  must  be  signed  by  the  drawer. 

The  place  of  the  signature  is  immaterial,  provided  it  appears 
to  have  been  intended  as  a  signature.  It  may  be  written  in 
pencil.  Or  it  may  be  printed  or  stamped.  Or  it  may  be  the 
drawer's  mark.  In  which  case,  however,  wdien  executed  by  the 
maker  by  mark,  it  should  be  executed  in  the  presence  of  an 
officer  of  the  bank,  or  ^ntnessed  by  a  person  who  could,  if  called 
upon  by  the  bank,  verify  the  check. 

Coupons  of  bonds  may  be  signed  by  the  printed  facsimile  of 
the  maker's  autograph  adopted  by  him  for  that  purpose,  though 
not  expressly  authorized  by  statute. 

The  State  Treasurer  of  the  State  of  Calfornia  refused  to  pay 
the  interest  on  certain  bonds,  alleging  that  the  signature  of  the 
party  entitled  to  collect  the  same,  had  been  printed  upon  the 
coupon  and  not  written  with  his  own  hand.  The  court  man- 
damused  the  treasurer,  and  he  was  compelled  to  pay.^ 

The  place  of  the  signature  upon  the  check  is  properly  at  the 
bottom  and  below  the  written  order  to  pay;  but  the  place  of 
the  signature  is  immaterial,  provided  it  appears  to  have  been 
intended  as  a  signature. 

§  187.  Days  of  grace. 

The  bank,  upon  presentment  of  a  check,  must  pay  the  same 
upon  demand,  and  cannot  claim  days  of  grace.  Xo  days  of 
grace  are  allowed  upon  checks. 

A  bill  of  exchange  drawn  on  a  bank  entitles  it  to  days  of 
grace,  and  the  bank  may  claim  this  time  and  is  not  liable  to  an 
action  for  non-payment  until  the  expiration  of  the  time;  but  a 
check  must  be  paid  when  presented.  This  rule  cannot  \:o\\  be 
changed.     It  would   retard   the  progress  of  business   and   ex- 

^  Ponniiigtor.  v.  Baohr,  48  Cal.  r)G5,  2S  Ind.  18;  G  Hill   (N.  V.)   443. 


cir.  XXI.]  Banking.  267 

clianges  to  establish  a  custom  allowing  banks  a  fixed  number 
of  days  in  which  payments  could  be  made  on  checks. 

The  refusal  of  a  bank  to  pay  a  check  when  presented  gives 
the  drawer  a  right  of  action,  in  case  he  has  funds  in  the  bank 
to  meet  the  checks.^ 

§  188.  Checks  negotiable  when. 

A  check  is  a  negotiable  instrument  under  the  law  unless 
by  its  written  terms,  it  is  made  non-negotiable.  A  check  pay- 
able on  a  contingency  is  not  negotiable.* 

§  189.  Delay  in  presentment. 

A  delay  in  presenting  a  check  for  payment  will  not  dis- 
charge the  drawer  from  his  obligation  on  the  check  unless  it 
is  shown  that  he  was  prejudiced  thereby.^ 

It  must  be  presented  within  a  reasonable  time.  If  the  holder 
fails  to  present  it  within  a  reasonable  time  and  the  bank  be- 
comes  insolvent,  the  drawer  will  be  discharged. 

§  190.  What  is  a  reasonable  time. 

The  rule  is,  that  where  the  payee  or  holder  is  in  the  same 
town  where  the  bank  is  located,  the  check  should  be  presented 
the  next  secular  day  after  it  is  received  and  during  banking 
hours. 

In  the  ease  of  Russell  K.  Bickford  v.  The  First  Xational 
Bank  of  Chicago,  42  111.  238,  it  is  held  that  in  order  to  fix 
the  liability  of  the  drawer  of  a  check  in  case  of  non-payment, 
the  holder  should  present  the  check  to  the  bank  on  which  it 
is  draMTi  within  business  hours  of  the  day  next  succeeding  the 
receipt  of  the  paper  and  give  notice  of  the  dishonor  to  the 
drawer. 

In  the  ease  of  Smith  c.  Miller,  43  X.  Y.  171,  Held,  that  the 
check  could  be  operative  as  payment  only  by  express  agree- 
ment; but  that  although  as  between  the  drawee  and  payee, 
the  payee  was  not  bound  to  present  the  check  until  the  day 
after  its  recei])t  by  him;  yet,  that  between  the  draw'er  and 
payee,  it  was  the  duty  of  the  payee  to  present  the  check  at 

sUiooks      r.      Tradesman's      Xat.  4  Littlo     r.  Bank,  2  Hill    (X.  Y.) 

Bank,  22  X.  Y.  St.  63.3.  42.5. 

r,  Bull  ,-.  Bank,  123  V.  S.  10.5. 


208  Checks.  [cii.  xxi. 

once  and  he  "was  guilty  of  laches  in  not  so  doing  and  was 
chargeable  with  consequent  loss. 

In  the  case  of  Hamilton  v.  Lumber  Company,  95  Mich.  43  G, 
the  court  says: 

"  It  was  held  in  Holmes  v.  Koe,  02  Mich.  199,  that  where 
the  person  receiving  the  check,  and  the  banker  on  whom  it 
is  drawn,  are  in  the  same  place,  in  the  absence  of  special  cir- 
cumstances it  must  be  presented  for  payment  the  same  day, 
or,  at  latest,  the  day  after,  it  is  received;  but  if  in  different 
places,  the  check  must  be  forwarded  for  presentment  on  the 
day  after  it  is  received,  at  the  latest.  It  is  also  well  settled 
that  where  the  drawer  has  been  discharged  by  the  laches  of 
the  holder,  and  that  fact  appears,  there  must,  in  order  to 
render  the  drawer  liable,  be  clear  proof  that  the  promise  was 
made  with  full  knowledge  of  all  the  facts  and  circumstances."  ^ 

§  191.  Diligence  to  bind  the  indorser. 

Where  a  check  is  drawn  on  a  bank  located  at  a  distant  place, 
the  rule  is,  that  the  check  must  be  mailed  to  that  place  for 
collection  during  business  hours  of  the  next  secular  day  after 
its  receipt,  and  the  person  charged  with  its  collection  must 
present  it  during  business  hours  of  the  next  secular  day  after 
its  receipt. 

In  case  of  the  Northwestern  Coal  Company  v.  Bowman  and 
Company,  09  Iowa,  1-50,  the  court  holds  that  this  rule,  how- 
ever, may  be  varied  by  the  particular  circumstances  of  the 
case.  The  presentment,  however,  must  be  made  in  every  case, 
with  all  the  dispatch  and  diligence  consistent  with  the  trans- 
action of  other  commercial  concerns.^ 

§  192.  Stale  checks. 

A  bank  is  bound  to  honor  and  pay  a  check  when  not  barred 
by  the  Statute  of  Limitations.  If  a  check  is  not  presented 
vs'ithin  a  reasonable  time,  where  the  drawer,  the  payee  and  the 

6Edw.    Bills    &    N.,    652-654;     2  Morris,    28     Barb.     616;     Smith    V. 

Daniel,  Xeg.  Inst.,  1149;  Wade,  No-  .Janes,  20  Wend.  102:  Burkhalter  r. 

lice,  974;   Parsons  v.   Dickinson,  23  Second    Nat.    Bank,    42    N.    Y.    5.38; 

Mich.     56;     Miller     r.     Hacklev,     5  Griflin    r.   Kemp,   46   Ind.    172-176; 

Johns.  .375.  '  WoodrufT    v.    Plant,    41    Conn.    344; 

7  Mohawk  Bank   r.   Broderick,   10  Werk    r.    Madriner   Valley    Bank   8 

Wend.    .304;    Middletown     Bank     r.  Ohio  St.  302. 


CH.  XXI.]  Banking.  269 

bank  are  all  in  the  same  place,  the  bank  will  naturally  look 
upon  such  a  failure  to  present  the  check,  with  suspicion,  and  it 
is  sufficient  cause  to  put  the  bank  upon  inquiry,  and  if,  failing 
to  make  a  proper  inquiry,  it  pays  the  check  at  its  peril. 

In  the  case  of  Bull  y.  Bank  of  Kasson,  123  U.  S.  105,  the 
court  holds  that  a  bank  check  presented  by  a  bona  fide  indorsee 
for  payment  six  months  after  its  date,  the  funds  against  which 
it  was  dra\\ni  remaining  in  the  hands  of  the  drawee,  and  the 
drawer  haying  been  in  no  way  injured  or  prejudiced  by  the 
delay,  is  not  oyerdue  so  as  to  be  subject  to  equities  of  the 
drawer  against  a  preyious  holder. 

§  193.  Holder  of  check  rights  against  bank. 

The  weight  of  authority  is,  that  the  payee  of  a  check,  before 
it  is  accepted  by  the  bank,  cannot  maintain  an  action  upon  it 
against  the  latter,  as  there  is  no  priyity  of  contract  between 
them.  The  holder's  remedy  is  against  the  drawer.  The 
bank's  liability,  if  any,  is  to  the  drawer. 

This  question  is  fully  and  elaborately  discussed  in  the  case 
of  First  Xational  Bank  of  Washington  y.  Whitman,  94  U.  S. 
343,  and  is  of  such  importance  as  to  here  justify  the  giying 
of  the  opinion  of  the  court  in  full. 

The  facts  are  stated  in  the  opinion  of  the  court: 

"  Opinion.  This  action  is  brought  against  the  First  Xational 
Bank  of  Washington  to  recoyer  the  amount  of  a  check  drawn 
upon  it  by  Mr.  Spinner,  Treasurer  of  the  United  States,  for 
$3,414,  dated  March  0,  1867.  The  check  is  in  this  form, 
yiz. : 


"  Draft  No.  9.243  on  War  Warrant  No.  915. 
"($3,41-1.) 

"  Treasury  of  the  United  States. 

"  Washington,  March  9,  1867. 

"  Pay  to  the  order  of  Mrs.  E.   S.  Kimbo,  three  thousand  three 

hundred   and   fourteen   dollars.      No.    9,243.     Registei'ed    March    9, 

1867. 

"  Issued  on  requisition  No.  .     .?3.414. 

"  S.  B.  Colby, 

"  Register  of  the  Treasui'y. 
"  F.  E.  Spinner, 

"  Treasurer  of  the  U.   S. 

"To  the  First  National  Bank  of  Washington,  D.  C." 


270  Checks.  •  [ch.  xxi. 

''  It  was  indorsed  in  the  name  of  Mrs.  Kimbro  without  au- 
thority, and  the  amount  of  it  was  paid  by  the  bank  to  an  un- 
authorized hokler.  It  appears  from  the  testimony  of  Mr. 
Tayler,  first  Comptrolller  of  the  Treasury,  that  the  funds  of 
the  Government  deposited  by  the  Treasurer  in  a  national  bank, 
are  treated  by  the  Government,  for  the  purposes  of  keeping 
accounts,  as  in  the  Treasurer's  own  charge  and  custody;  that 
they  are  charged  to  him,  and  that  payments  made  are  credited 
to  him,  and  that  he  is  chargeabk'  precisely  as  if  the  funds  had 
been  in  his  own  office,  and  that  he  had  power  to  make  the  check 
in  question. 

"  ^Ve  may,  therefore,  simplify  the  case  by  clindnating  from 
its  consideration,  all  reference  to  the  United  States,  and  con- 
sider the  transaction  as  between  Mr.  Spinner,  as  an  individual, 
and  the  bank,  as  his  depository,  and  Mrs.  Kimbro,  as  the  payee 
of  his  check. 

"  The  question  is  this:  Can  the  payee  of  a  check,  whose 
indorsement  has  been  forged  or  made  without  authority,  and 
when  payment  has  been  made  by  the  bank  on  which  it  was 
dra^UTi,  upon  such  unauthorized  indorsement,  maintain  a  suit 
against  the  bank  to  recover  the  amount  of  the  check  ?  We 
think  it  is  clear,  both  upon  principle  and  authority,  that  the 
payee  of  a  check  unaccepted  cannot  maintain  an  action  upon 
it  against  the  bank  on  which  it  is  drawn.  The  careful  and 
well-reasoned  opinion  of  Mr.  Justice  Davis  in  delivering  the 
judgment  of  this  court  in  Bank  of  the  Republic  v.  Millard, 
10  "Wall.  152,  leaves  little  to  add  upon  this  subject  by  way  of 
illustration  or  authority.  In  that  case  a  paymaster  of  the 
army  made  his  check  on  the  Bank  of  the  Republic  to  the 
order  of  Captain  Millard  for  $859,  due  to  him  for  arrears 
of  pay  as  an  officer  of  the  army.  The  bank  paid  the  amount 
of  the  cheek  upon  a  forged  indorsement  of  Millard's  name. 
Recovering  the  check  and  exposing  the  forgery,  Millard  de- 
manded payment  to  himself,  and,  upon  refusal,  brought  his 
action  against  the  bank.  This  court  held  that  the  action 
could  not  be  maintained,  upon  the  principle  that  there  was  no 
privity  between  the  bank  and  ^fillard.  The  bank's  contract 
was  with  the  paymaster  only,  and  to  him  only  was  its  duty. 
It  received  no  money  from  Millard.     It  never  promised  Mil- 


cir.  XXI.]  Banking.  271 

lard  to  pay  liim  any  money.  It  had  no  money  belonging  to 
him.  It  received  money  from  the  paymaster,  upon  an  agree- 
ment that  it  would  return  it  to  him  when  called  for  by  him 
in  person,  or  that  it  wonld  pay  it  upon  his  checks.  But  it  made 
no  such  agreement,  or  any  agreement,  with  Millard.  For  a 
failure  of  duty  in  this, respect,  it  was  responsible  to  the  pay- 
master, with  whom  it  made  the  contract,  and  to  no  one  else. 
If  the  check  was  not  paid,  the  arrears  of  pay  to  Millard  were 
not  paid,  and  his  claim  upon  the  Government  or  the  paymaster 
was  not  impaired  by  the  giving  of  the  check,  which,  being 
presented  in  due  time,  was  not  paid.  He  was  still  entitled  to 
demand  his  arrears. 

''  That  case  is  a  perfect  and  complete  authority  upon  the 
question  stated.  See  also  Aetna  iSTational  Bank  v.  Bank,  46 
N.  Y.  82. 

"  Xor  is  this  principle  confined  to  checks  or  bills.  Thus,  in 
Ashley  v.  Dixon,  48  N.  Y.  430,  it  was  held  that  if  'A.'  be 
under  a  contract  to  sell  property  to  '  B.,'  and  '  C  persuade 
'A.'  to  sell  the  property  to  him,  no  action  lies  by  '  B.'  against 
'  C  There  is  no  privity  of  contract  between  '  C  and  '  B.,' 
but  the  remedy  of  the  latter  is  against  'A.'  only. 

"  It  is  not  to  be  doubted,  however,  that  it  is  within  the 
power  of  the  bank  to  render  itself  liable  to  the  holder  and 
payee  of  the  check.  This  it  may  do  by  a  formal  acceptance 
written  upon  the  check,  in  which  case,  it  stands  to  the  holder 
in  the  position  of  a  drawer  and  acceptor  of  a  bill  of  exchange.^ 

"  It  may  accomplish  the  same  result  by  writing  upon  it  the 
word  '  good,'  or  any  similar  words  which  indicate  a  statement 
by  it  that  the  drawer  has  funds  in  a  bank  applicable  to  the 
payment  of  the  check,  and  that  it  will  so  apply  them.^ 

"And  such  certificate,  it  is  said,  discharges  the  drawer.  As 
to  him  it  amounts  to  a  payment. ^^ 

"  Whether  this  certificate  be  obtained  by  the  drawer  before 
the  check  is  delivered,  and  is  thus  made  an  inducement  to  the 
payee  to  receive  the  same,  or  whether  it  is  made  upon  the 
application  of  the  payee  for  his  security,  is  of  no  importance. 

8  Merchants'  Bank  r.  State  Bank,  lo  Bank  r.  Leach.  52  N.  Y.  350; 
10  Wall.  004;  Epsy  r.  Bank  of  Cin-  Meads  r.  Merchants'  Bank.  25  id. 
cinnati,  18  id.  004.'                                       143,  9  Met.  311,  2   Duer,  121. 

9  Cook  V.  State  Bank  of  Boston, 
52  N.  Y.  96. 


272  Checks.  [cii.  xxi. 

It  is  a  contract  recognized  by  tlie  law,  valid  in  its  character, 
which  essentially  changes  the  position  of  the  parties.  The 
privity  of  contract  -with  the  drawee,  which  before  pertained 
to  the  drawer  alone,  is  now  imparted  to  the  payee,  and  the 
duty  which  before  existed  only  to  the  drawer  now  exists  to 
the  payee, 

''  It  is  said  that  this  fact  of  a  contract  between  the  payee 
and  drawee  exists  in  the  present  case.  The  testimony  of  Mr. 
Arnold  is  referred  to,  to  the  effect  that  in  April,  1867,  the 
bank  made  its  weekly  statements  to  Mr.  Spinner  of  deposits 
received  and  payments  made,  returning  the  draft  of  Mrs. 
Kimbro  as  paid  on  the  22nd  of  that  month,  and  that  in  the 
statement  the  amount  of  the  draft  was  entered  to  the  credit 
of  the  bank. 

"  There  is  no  suggestion  in  the  evidence  that  either  the 
bank  or  Mr.  Spinner  knew  that  the  indorsement  of  the  payee 
was  unauthorized.  The  bank,  we  assume,  would  not  know- 
ingly subject  itself  to  the  dangers  and  liabilities  resulting  from 
making  payment  to  one  not  authorized  to  receive  it.  AVe 
assume,  also,  as  we  are  bound  in  justice  to  it  to  do,  that  it 
would  not  ask  Mr.  Spinner  to  give  credit  for  a  payment  that 
it  knew  to  have  been  illegally  made,  and  that  it  would  not 
attempt  to  deceive  him  into  the  belief  that  a  pretended  in- 
dorsement was  a  real  one.  It  comes  to  this,  that,  upon  a 
settlement  of  accounts  between  them,  a  credit  was  by  mistake 
allowed  to  the  bank  to  which  it  was  not  entitled.  The  law  is, 
that  neither  party  is  to  be  benefited  or  to  be  injured  by  the 
mistake.  The  bank  must  refund  the  amount  by  handing  over 
the  siun,  or  by  crediting  the  same  to  Mr.  Spinner  in  his  next 
account.  Mistakes  in  bank  accounts  are  not  uncommon. 
They  occur  both  by  unauthorized  or  pretended  payments,  as 
well  as  by  the  omission  to  give  credit  for  sums  deposited. 
When  discovered,  the  mistake  must  be  rectified,  and  an  ordi- 
nary writing  up  of  a  bank  book,  with  a  return  of  vouchers  or 
a  statement  of  accounts,  precludes  no  one  from  ascertaining 
the  truth  and  claiming  its  benefits.^^ 

"  "We  cannot  perceive  that  such  a  mistaken  recognition  of 

11  Storv,    Eq.    PI.,     §§     79!)-S01  ;       r.    Hone.    2    Barb.    586;    Bullock    v. 
Ptory.  Eq.  .Jur.,  §§  52.3,  .527;  Buch-       Boyd,  2  Edw.  292, 
lin  V.  Chaplin,   1  Lans.  44.3;    Bruen 


cir.  XXI.]  Banking.  .  273 

the  validity  of  the  payment  of  this  check  can  create  an  addi- 
tional or  diffeient  contract  between  the  bank  and  the  owner 
of  the  draft. 

"  It  is  further  contended  that  such  an  acceptance  of  the 
check  as  creates  a  privity  betw^een  the  payee  and  the  bank  is 
established  by  the  payment  of  the  amount  of  this  check  in 
the  manner  described.  This  argument  is  based  upon  the 
erroneous  assumption  that  the  bank  has  paid  this  check.  If 
this  were  true,  it  Avould  have  discharged  all  of  its  duty,  and 
there  would  be  an  end  of  the  claim  against  it.  The  bank  sup- 
posed that  it  had  paid  the  check;  but  this  was  an  error.  The 
money  it  paid  was  upon  a  pretended  and  not  a  real  indorse- 
ment of  the  name  of  the  payee.  The  real  indorsement  of  the 
payee  was  as  necessary  to  a  valid  payment  as  the  real  signa- 
ture of  the  drawer;  and  in  law  the  check  remains  unpaid.  Its 
pretended  payment  did  not  diminish  the  funds  of  the  drawer 
in  the  bank,  or  put  money  in  the  pocket  of  the  person  entitled 
to  the  payment.  Tlie  state  of  the  account  was  the  same  after 
the  pretended  payment  as  it  was  before. 

"  We  cannot  recognize  the  argument  that  a  payment  of  the 
amount  of  a  check  or  sight  draft  under  such  circumstances 
amounts  to  an  acceptance,  creating  a  privity  of  contract  with 
the  real  owner.  It  is  difficult  to  construe  a  payment  as  an 
acceptance  under  any  circumstances.  The  two  things  are 
essentially  different.  One  is  a  promise  to  perform  an  act,  the 
other  an  actual  performance.  A  banker  or  an  individual  may 
be  ready  to  make  actual  payment  of  a  check  or  draft  when  pre- 
sented, while  unwilling  to  make  a  promise  to  pay  at  a  future 
time.  Many,  on  the  other  hand,  are  more  ready  to  promise 
to  pay  than  to  meet  the  promise  Avhen  required.  The  differ- 
ence between  the  transactions  is  essential  and  inherent. 

"  Without  discussing  the  other  questions  argued,  we  are 
of  the  opinion,  for  the  reasons  given,  that  the  plaintiff  below 
was  not  entitled  to  recover." 

Where  a  bank  certifies  a  check,  it  is  equivalent  to  a  declara- 
tion upon  the  part  of  the  bank  that  the  maker  has  the  funds 
deposited  with  the  bank  and  to  his  credit  to  pay  the  same. 

Immediately  upon  the  certification  of  a  check  by  the  bank 
the  maker's  account  should  be  charged  with  the  amount  of 
the  check,  and  the  bank  at  once  charges  itself  with  the  amount 
18 


274  Checks.  [ch.  xxi. 

and  places  the  same  to  the  "  certified  check  account."  There- 
upon, it  becomes  an  unconditional  promise  by  the  bank  to 
pay  the  check  to  the  payee  named  therein  or  to  the  bona  fide 
owner. 

The  rule  then  is,  that  the  legal  holder  upon  failure  of  the 
bank  to  pay,  may  enforce  payment  in  an  action  directly  against 
the  bank.^^ 

A  certificate  of  deposit  issued  by  a  bank  is  very  much  like 
a  certified  check.  It  is  equivalent  to  a  certification  that  the 
bank  has  received  the  amount  named  therein,  and  it  agrees 
to  pay  the  same  to  the  bona  fide  OAvner  thereof  on  presentment, 
and  a  failure  of  the  bank  to  pay,  the  holder  may  enforce  pay- 
ment in  an  action  against  the  bank. 

§  194.  Certified  checks. 

A  certified  check  is  in  form,  the  same  as  an  ordinary  check 
drawn  upon  the  bank,  and  when  presented  for  certification, 
the  officer  of  the  bank  having  authority  to  certify  checks, 
stamps  or  marks  across  the  face  of  the  check,  the  word  "  good," 
signing  his  name  thereto  and  writing  the  date  of  certification. 

All  banking  corporations  conducting  a  commercial  or  sav- 
ings bank  business,  and  authorized  to  issue  or  pay  checks  upon 
accounts,  may  certify  any  check  drawn  upon  the  association, 
if  the  drawer  of  said  check  has  an  amount  of  money  equal  to 
the  amount  specified  in  such  check  in  the  bank. 

The  Kevised  Statutes  of  the  United  States,  section  5208, 
provides : 

"  It  shall  be  unlawful  for  any  officer,  clerk,  or  agent  of  any 
national  banking  association  to  certify  any  check  drawn  upon 
the  association  unless  the  person  or  company  drawing  the 
check  has  on  deposit  with  the  association,  at  the  time  such 
check  is  certified,  an  amount  of  money  equal  to  the  amount 
specified  in  such  check.  Any  check  so  certified  by  duly  au- 
thorized officers  shall  be  a  good  and  valid  obligation  against 
the  association;  but  the  act  of  any  officer,  clerk,  or  agent,  of 
any  association,  in  violation  of  this  section,  shall  subject  such 
bank  to  the  liabilities  and  proceedings  on  the  part  of  the 
Comptroller  as  provided  for  in  section  fifty-two  hundred  and 
thirty-four." 

12  Florence  Mining  Co.   r.  Brown,   124  U.  S.  385. 


cii.  XXI.]  Ba:xking.  275 

In  the  discussion  by  the  court  of  the  foregoing  section  of  the 
statute,  in  the  case  of  Thompson  et  al.  as  executors,  etc.,  Appel- 
lants V.  The  St.  Xicholas  Xational  Bank,  Respondent,  113 
X.  Y.  325,  the  court  says: 

"  It  will  be  seen  that  the  statute  affirms  the  legality  of  the 
contract  of  certitication,  and  expressly  prescribes  the  conse- 
quences which  shall  follow  its  violation.  It,  therefore,  appears 
that,  so  far  from  making  the  contract  of  certification  void  and 
illegal,  its  validity  is  expressly  affirmed,  and  the  consequences 
which  follow  a  violation  are  specially  defined,  and  impliedly 
limit  the  penalty  incurred  to  a  forfeiture  of  the  bank's  charier 
and  the  winding  up  of  its  affairs.  There  is  a  clear  implication 
from  this  provision  that  no  other  consequences  are  intended 
to  follow  a  violation  of  the  statute.  It  would,  indeed,  defeat 
the  very  policy  of  an  act  intended  to  promote  the  security  and 
strength  of  the  national  banking  system,  if  its  provisions  shoidd 
be  so  construed  as  to  inflict  a  loss  upon  them,  and  a  consequent 
impairment  of  their  financial  responsibility. 

"  The  decisions  of  the  Supreme  Court  of  the  United  States 
are  uniform  in  giving  this  construction  to  the  provisions  of  the 
National  Banking  Act."  ^^ 

The  above  case  was  appealed  from  the  Court  of  Appeals  of 
the  State  of  Xcw  York  and  heard  Iw  the  Supreme  Court  of  the 
United  States  at  its  October  term,  1802.  Mr.  Justice  Blatch- 
ford,  in  delivering  the  opinion  of  the  court,  says: 

"  In  addition  to  that,  the  statute  expressly  provides  that  a 
check  certified  by  a  duly  authorized  officer  of  the  bank,  when 
the  customer  has  not  on  deposit  an  amount  of  money  equal  to 
the  amount  specified  in  the  check  certified,  shall  nevertheless 
be  a  good  and  valid  obligation  against  the  bank;  and  there  is 
nothing  in  the  statute  which,  expressly  or  by  implication,  pro- 
hibits the  bank  from  taking  security  for  the  protection  of  its 
stockholders  against  the  debt  thus  created.  There  is  no  pro- 
hibition against  a  contract  by  the  bank  for  security  for  a  debt 
which  the  statute  contemplates  as  likely  to  come  into  existence, 
although  the  unlawful  act  of  the  officer  of  the  bank  in  certify- 
ing may  aid  in  creating  the  debt.  In  order  to  adjudge  a  con- 
is  National  Bank  of  Xenia  v.  Xational  Bank  r.  Whitnev,  103  id. 
Stewart,  107  U.  8.  67G ;  Xational  99. 
i'.aiik     r.     Matthews,     98     id.     621; 


270  Checks.  [ch,  xxi. 

tract  unlawful,  as  prohibited  by  a  statute,  the  prohibition  must 
be  found  in  the  statute.  The  subjection  of  the  bank  to  the 
penalty  prescribed  by  the  statute  for  its  violation  cannot  op- 
erate to  destroy  the  security  for  the  debt  created  by  the  for- 
bidden certification.     *     *     * 

"  This  construction  of  the  statute  in  question  is  strengthened 
by  the  subsequent  enactment,  on  July  12,  1882,  of  section  13 
of  the  act  of  that  date,  chapter  288,  22  Stat.  166,  making  it  a 
criminal  offence  in  an  officer,  clerk  or  agent  of  a  national  bank 
to  violate  the  provisions  of  the  act  of  March  3,  1869.  This 
shows  that  Congress  only  intended  to  impose,  as  penalties  for 
over-certifying  checks,  a  forfeiture  of  the  franchises  of  the 
bank  and  a  punishment  of  the  delinquent  officer  or  clerk,  and 
did  not  intend  to  invalidate  commercial  transactions  connected 
witli  forbidden  certifications.     *     *     * 

"  Moreover,  it  has  been  held  repeatedly  by  this  court  that 
where  the  provisions  of  the  National  Banking  Act  prohibit  cer- 
tain acts  l)y  l)anks  or  their  officers,  without  imposing  any  pen- 
alty or  forfeiture  applicable  to  particular  transactions  wliich 
have  been  executed,  their  validity  can  be  questioned  only  by 
the  United  States,  and  not  by  private  parties."  ^'* 

The  penalty  for  illegal  issue  of  certified  checks  will  be 
found  in  the  Act  passed  by  Congress  and  approved  July  12, 
1882.     Section  13  of  said  act  fixing  the  penalty  is  as  follows: 

"  That  any  officer,  clerk,  or  agent  of  any  national  banking 
association  Avho  shall  willfully  violate  the  provisions  of  an  act 
entitled,  *  An  act  in  reference  to  certifying  checks  by  national 
banks,'  approved  March  third,  eighteen  hundred  and  sixty-nine, 
being  section  fifty-two  hundred  and  eight  of  th^  Revised  Stat- 
utes of  the  United  States,  or  who  shall  resort  to  any  device,  or 
receive  any  fictitious  obligation,  direct  or  collateral,  in  order 
to  evade  the  provisions  thereof,  or  who  shall  certify  checks 
before  the  amount  thereof  shall  have  been  regularly  entered  to 
the  credit  of  the  dealer  upon  the  books  of  the  banking  associa- 
tion, shall  be  deemed  guilty  of  a  misdemeanor  and  shall,  on 
conviction  thereof  in  any  circuit  or  district  court  of  the  United 
States  be  fined  not  more  than  five  thousand  dollars,  or  shall  be 

14  National  Bank  r.  Wliitney.  103  thews,  98  id.  621  ;  National  Bank  of 
U.    S.   99;    National   Bank   v.'  Mat-       Xenia  v.  Stewart,  107  id.  67G. 


CK.  XXI.]  Bankixg.  277 

imprisoned  not  more  than  five  years,  or  both  in  the  discretion 
of  the  court." 

§  195.  Right  of  holder  to  look  to  both  the  acceptor  and  the 
drawer  of  a  certified  check. 

The  Supreme  Court  of  the  State  of  Illinois  in  the  case  of 
Bickford  r.  First  Xational  Bank  of  Chicago,  42  111.  238,  de- 
clares that  the  holder  of  a  certified  check  has  the  right  to  hold 
the  drawee  and  acceptor  as  well  as  the  drawer.  That  where 
the  acceptor  has  failed  and  made  an  assignment,  the  holder 
waives  none  of  his  rights  against  the  drawer  by  giving  notice 
to  the  assignee  of  the  acceptor  not  to  pay  over  any  money  to 
the  drawer  out  of  assets  which  might  come  to  his  hands  in  that 
capacity. 

The  court  says: 

"  Certifying  a  check  to  be  '  good  '  is  nothing  more  than  a 
promise  by  the  bank  to  j)ay  it  when  presented,  as  in  the  case  of 
the  acceptance  of  a  bill  of  exchange.  Xow,  in  the  latter  case, 
what  are  the  rights  and  duties  of  the  parties?  If  the  bill  is 
accepted  by  the  drawee  and  protested  for  nonpayment  and  the 
drawer  duly  notified  thereof,  the  law  is  well  settled  that  he  is 
bound  to  pay  the  bill  with  damages  and  costs.  The  same  is  the 
law  in  regard  to  a  certified  check.  Barnett  v.  Smith,  10  Foster 
(K  H.)  206.  In  AVillets  v.  The  Phoenix  Bank,  2  Duer.  121, 
it  was  held  that  certifying  a  check  to  be  '  good '  meant  not  only 
that  it  was  good  when  certified,  but  that  it  shall  be  good  when 
presented  for  payment.  If  this  was  not  so,  the  act  of  certifying 
would  be  nugatory  and  amount  to  a  fraud." 

§   196.  Drawer  of  certified  check  when  released. 

"Where  the  drawer  of  a  check  makes  and  delivers  the  same 
to  the  holder  and  he  procures  a  certification  by  the  bank,  the 
drawer  is  released.  By  his  own  act  he  makes  the  bank  his 
debtor.  In  the  case  of  Born  v.  The  First  Xational  Bank  of 
Indianapolis,  123  Ind.  78,  the  court  says: 

"  "\Ve  agree  with  the  appellant's  counsel  that  the  drawer  of 
a  check  is  released  if  the  holder  instead  of  presenting  it  for 
payment  himself,  procures  it  to  be  certified  by  the  bank  upon 
which  it  is  drawn.  If  the  holder  elects  to  procure  the  certifica- 
tion of  the  check,  it  becomes  in  his  hands  substantially  a  cer- 


2TS  Checks.  [ch.  xxi. 

tificate  of  deposit.  By  his  own  act  lie  makes  the  bank  his 
debtor  and  releases  the  drawer  of  the  check.  The  reason  for 
this  rnle  is,  that  the  moment  the  check  is  certified,  the  funds 
cease  to  be  under  the  control  of  the  original  depositor  and  pass 
under  the  control  of  the  person  who  procures  the  certification 
of  the  check  drawn  in  his  favor.  First  Xational  Bank  v.  Leach, 
52  X.  Y.  350;  Thomas  y.  Bank,  82  X.  Y.  1;  Girard  v.  Bank 
of  Pennsylvania,  T.  P.,  39  Pa.  St.  92;  Freund  v.  Importers', 
etc.,  Bank,  76  X.  Y.  352." 

And  the  court  in  this  connection  states : 

^'  It  is  true  that  the  bank  b_v  which  the  check  is  certified  be- 
comes bound  for  its  payment,  and  that  it  cannot  defeat  the  right 
of  the  holder  upon  the  ground  that  the  drawer  has  no  funds  on 
deposit.     Espy  v.  Bank  of  Cincinnati,  18  Wall.  604."  ^^ 

It  is  held  in  the  case  of  Riverside  Bank  v.  First  Xational 
Bank  of  Shenandoah,  74  Fed.  Pep.  276,  that  the  certification 
l»y  a  bank  of  a  check  made  payable  by  such  bank  where  the 
drawer  keeps  an  account,  is  an  absolute  promise  by  the  bank 
to  pay  such  check,  not  as  the  debt  of  another  but  as  its  own 
obligation.  This  entitles  the  holder  of  the  check  to  suspend 
any  remedy  against  the  maker  and  relax  steps  to  charge  an 
indorser,  and  cannot  be  rescinded  by  the  bank  because  made 
under  a  misapprehension  of  fact  as  to  the  efficiency  of  the 
maker's  account  to  meet  the  check. 

Where  "A"  purchases  a  certified  check  payable  to  order  and 
obtains  title  "VA-ithout  indorsement  by  the  payee,  he  holds  it  sub- 
ject to  all  equities  and  defenses  existing  between  the  original 
parties,  although  he  may  have  paid  a  full  consideration  without 
notice. -^^ 

§  197.  A  bill  of  exchange  may  be  accepted  orally. 

Where  the  statute  of  a  State  does  not  provide  that  an  accept- 
ance of  a  bill  of  exchange  or  check  shall  be  made  in  writing,  a 
verbal  acceptance,  when  proven,  is  good. 

The  court,  in  the  case  of  Jarvis  v.  Wilson,  46  Conn.  90, 
says  that  the  Statute  of  Frauds  does  not  apply  to  such  an  under- 
taking, and  gives  as  a  reason,  that  the  acceptor  is  regarded  as 

iSTlie  Irvinpr  Bank  r.  Wetherald.  16  Goshen  Nat.  Bank,  Appellant,  f. 

3fi  N.  Y.  .S3.5:  Drover's  Nat.  Bank  Bingliam.  Respondent.  118  N.  Y. 
r.  Provision  Co.,  117  111.  100.  .340;    Lvnch    r.   First  Nat.   Bank  of 

Jersey  City,  107  id.  179. 


CH.  XXI.]  Banking.  279 

the  primary  debtor  and  his  acceptance  is  an  undertaking  not 
merely  to  pay  a  debt  due  from  the  drawer  to  the  payee,  but  to 
pay  his  own  debt  to  the  drawer. 

The  courts  say  that  it  is  fully  settled,  both  in  England  and 
in  the  United  States,  that  in  the  absence  of  a  statute,  an  oral 
acceptance  of  a  bill  of  exchange  will  bind  the  acceptor. ^^ 

§  198.  Liability  of  banks  —  Negligence. 

In  the  case  of  Peter  Helwege  v.  Hibernia  National  Bank, 
28  La.  Ann.  520,  it  is  held  that  where  a  bank  certified  a  check 
failing  to  use  proper  caution,  allowing  the  check  to  pass  from 
its  hands  after  certification  drawn  in  such  a  manner  that  the 
amount  could  be  easily  raised  without  suspicion,  that  in  the 
hands  of  a  bona  fide  owner  for  value,  it  had  no  defense. 

The  court  says: 

"  The  bank  was  negligent  in  certifying  the  check  without 
drawing  a  line  with  a  pen  across  the  blank  between  the  words 
forty-one  and  dollars,  thereby  enabling  the  drawer  to  perpe- 
trate the  fraud.  The  evidence  is,  there  was  nothing  in  the 
appearance  of  the  check  to  excite  the  suspicion  of  the  plaintiff 
or  a  prudent  man  in  business." 

§  199.  When  mistake  in  certification  may  be  corrected  by  a 
bank. 

"Where  a  bank,  through  a  mistake,  has  certified  a  check  for 
an  amount  greater  than  the  drawer  has  on  deposit,  it  may,  after 
discovering  the  mistake  and  after  the  delivery  of  the  check 
to  the  holder,  upon  getting  temporary  possession,  cancel  and 
make  the  certification  of  no  effect  as  between  the  holder  and 
the  bank,  provided  no  rights  of  other  parties  have  intervened 
and  the  situation  or  rights  of  the  holder  between  the  certifica- 
tion of  a  check  and  its  cancellation  has  in  no  way  changed. 

§  200.  Who  may  certify  checks. 

The  president  and  cashier  of  a  bank  have  the  inherent  power 
to  certify  checks.  The  assistant  cashier,  paying  and  receiving 
tellers  may  do  so  when  duly  authorized  by  the  board  of 
directors. 

HDunovan    r.    Flinn,    118    Mass.  Vt.  31:   Ward  i'.  Allen,  2  Met.  53; 

539;   Spaiilding  r.  Andrews,  48  Pa.  Exchange   Bank   f.   Kice,   98   Mass. 

(S.    R.)     411;    1    Parsons    on    Con-  288. 
tracts,  267;   Fisher  v.  Beckwith,  19 


280  Checks.  [ch.  xxi. 

"Where  there  is  no  authority  for  the  act,  a  general  or  par- 
ticular usage  in  a  given  direction  will  bind  the  bank  to  respond 
to  a  third  party  who  deals  with  it  in  good  faith. 

The  general  rule  is,  that  where  a  subordinate  officer  or  clerk 
of  a  hank  performs  any  act  out  of  the  mere  ordinanj  routine  of 
hanking  business,  that  in  order  to  hind  the  hank,  his  authority 
to  act  must  he  shown. 

Where  a  subordinate  officer  or  clerk  has  been  permitted  to 
pursue  a  particular  practice  in  certifying  checks  for  customers 
or  othenvise,  his  acts  although  icronqful,  ivill  hind  the  hank  in, 
faror  of  a  person  who  fuUfils  the  conditions  of  a  dealer  in  good 
faith}^ 

§  201.  When  bank  estopped  from  denying  a  forged  certification. 

'*  Where  a  forged  certification  of  a  check  is  presented  at  the 
bank  upon  which  the  check  is  drawn,  to  the  teller  whose  certifi- 
cate it  purports  to  be,  and  he  pronounces  it  genuine,  he  adopts 
the  certification  and  the  bank  is  bound  by  it  the  same  as  if  it 
was  genuine. 

§  202.  Bank  can  correct  mistake  when. 

Where  a  bank  certifies  a  cheek  by  mistake,  it  may  correct 
the  same  by  immediately  notifying  the  holder  and  before  the 
check  has  passed  from  his  hands  to  the  hands  of  a  bona  fide 

20 

owner. 

§  203.  Memorandum  checks. 

Memorandum  checks  or  checks  marked  as  such  by  the  drawer 
by  writing  on  the  face  of  the  check  "  memo  "  or  *^  memoran- 
dum," has  no  significance  relating  to  the  duties  of  the  bank 
when  presented  for  payment.  They  are  treated  as  all  other 
checks,  and  when  presented  by  the  payee  they  must  be  paid. 
The  words  "  memo  "  or  "  memorandum  "  written  on  the  face 
of  a  check,  as  between  the  drawer  and  the  payee,  may  signify 
and  denote  a  contract  of  some  nature  existing  between  them; 
but  the  words  as  stated  have  no  significance  to  the  bank. 

18  Farmers  &  M.  Bank  v.  But-  New  York  Nat.  Banking  Assoc,  20 
Cher's   &   Drover's   Bank,    16   N.    Y.       N.   W.   8.52. 

125.  20  The  Irvin<?  Bank   r.  Wetherald, 

19  Continental  Nat.  Bank  r.  The  30  N.  Y.  .3.3.') ;  Brooklyn  Trust  Co.  V. 
Nat.  Bank  of  the  Commonwealth,  i-)0        Toler,  6.'3  Hun,  187. 

N.  Y.  575;  Clews  et  al.  v.  Bank  of 


cii.  XXI.]  BA^^KIXG.  281 

If  there  is  an  agreement  existing  between  the  drawer  and 
payee,  for  example,  that  the  check  will  not  be  presented  at  the 
bank  immediately  for  payment,  the  only  remedy  the  drawer 
may  have,  is  one  direct  against  the  payee. 

Where  a  check  drawn  in  favor  of  one  who  had  lent  money 
to  the  drawer,  on  the  bank  where  the  drawer  was  known  to  have 
no  funds  and  where  such  check  was  marked  as  a  memorandum 
check  and  which  was  not  expected  to  be  presented  to  the  bank. 
Held: 

"  AVith  respect  to  the  check,  considering  the  circumstances 
under  which  it  was  received,  both  parties  knowing  that  there 
were  no  funds  in  the  bank,  and  it  not  being  intended  to  be  pre- 
sented there,  we  think  it  may  be  well  considered  as  evidence  of 
money  borrowed  and  recoverable  on  one  of  the  money  counts." 

In  the  case  of  Jacob  Skillman  v.  Liscomb  R.  Titus,  3  (Vroom.) 
X.  J.  Rep.  96,  where  an  action  was  brought  on  an  ordinary 
bank  check  drawn  payable  to  "  A,"  "  B,"  or  bearer  and  is  in- 
dorsed by  the  holder  to  a  third  person  for  a  valuable  considera- 
tion, and  it  appears  that  at  the  time  of  indorsement  the  abbre- 
viation "  mem  "  was  on  the  face  of  the  check,  and  that  two 
years  and  a  half  had  elapsed  since  it  was  dra^^m,  the  circum- 
stances indicated  that  the  check  was  not  given  in  the  usual 
course  of  business,  and  were  sufficient  to  put  the  indorsee  upon 
inquiry;  and  if,  for  want  of  proper  inquiry,  he  suffers  loss,  he 
has  no  ground  of  complaint  against  the  drawer  of  the  check.^^ 

§  204.  Post-dated  checks. 

A  post-dated  cheek  is  one  drawn  in  the  ordinary  form,  but 
bears  a  future  date  and  is  payable  on  or  at  any  time  after  its 
date. 

If  a  bank  pays  a  post-dated  check  before  the  day  of  its 
maturity,  it  does  so  entirely  at  its  own  risk. 

The  evident  object  of  the  drawer  of  such  a  check  is  to 
extend  the  time  of  payment  to  a  time  when  he  may  provide  the 
money  to  pay  the  same,  and  if  a  bank  pays  such  a  check  before 
its  maturity  and  charges  the  same  to  the  account  of  the  drawer, 
and  dishonors  and  refuses  to  pay  another  check  of  the  drawer 
not  post-dated  but  intended  by  the  drawer  to  be  paid  out  of  his 

21  Dykers  i\  Leather  Manufacturers'  Bank,  11  Paige   (N.  Y.)   612. 


282  Checks.  [cii.  xxi, 

ordinary  account,  the  bank  becomes  liable  to  the  drawer  to  the 
extent  of  any  damages  caused  by  such  act. 

The  drawer's  cheek  is  not  an  order  of  direction  to  the  bank 
to  ])ay  the  same  until  the  day  of  its  maturity. 

A  post-dated  cheek,  like  all  other  checks,  is  not  entitled  to 
days  of  grace. 

The  law  defining  and  governing  post-dated  checks  is  so  clearly 
given  in  the  case  of  Champion  v.  Gordon,  TO  Pa.  St.  474,  the 
opinion  of  the  court  is  given  in  full: 

"  The  law  merchant  recognizes  clearly  a  distinction  in  many 
respects  between  checks  on  banks  and  ordinary  bills  of  ex- 
change. One  difference  is,  that  when  tlie  former  are  payable 
on  demand  or  at  sight,  no  days  of  grace  are  allowed.  The  same 
rule  holds  when  they  are  post-dated.  Byles  on  Bills,  1-4,  note: 
']  Kent's  Com.  104,  note;  In  re  Brown,  2  Story's  Rep.  502; 
Daniel  v.  Kyle,  1  Kelly  (Md.)  304;  Mohaw^k  Bank  v.  Broderick, 
10  Wend.  304;  Salter  v.  Burt,  20  Wend.  205;  Andrew  v. 
Blackly,  11  Ohio  (X.  S.)  89;  Westminster  Bank  v.  Wheaton, 
4  R.  I.  30.  Whether  it  applies  also  to  checks  payable  at  a 
future  day  named,  is  a  question  upon  which  there  is  a  con- 
trariety of  opinion  and  decision.  Mr.  Justice  Story  says: 
■'  The  argument  pressed  is  that  checks  are  always  and  properly 
payable  on  demand,  and  that  when  payable  at  a  future  time 
they  become,  to  all  intents  and  purposes,  inland  bills  of  ex- 
change. But  I  am  not,  by  any  means,  prepared  to  admit  the 
validity  or  force  of  this  distinction;  and  no  case  has  been  cited 
which,  in  my  judgment,  satisfactorily  establishes  it.  A  check 
is  not  less  a  check  because  it  is  post-dated,  and  thereby  becomes 
in  effect  payable  at  a  future  and  different  time  from  that  on 
wdiich  it  is  drawn  or  issued.  This  is  sufficiently  apparent  from 
the  case  of  Allen  v.  Keerers,  1  East.  435."  That  was  the 
determination  of  a  question  arising  under  the  Stamp  Acts,  and 
it  was  there  held  that  a  post-dated  check  was  not  a  draft  pay- 
able on  demand,  but  at  a  future  day,  and  therefore  liable  to 
the  duty. 

Judge  Story  adds:  "It  (a  check)  is  usually  also  made  pay- 
able on  demand,  although  I  am  not  aw^are  that  this  is  an  essen- 
tial requisite.  The  distinguishing  characteristics  of  checks,  as 
contradistinguished  from  bills  of  exchange,  are  (as  it  seems  to 
me)  that  they  are  always  drawn  upon  a  bank  or  banker;  that 


cii.  XXI.]  Baxkixg.         .  283 

they  are  payable  immediately  on  presentment,  without  the 
allowance  of  any  days  of  grace,  and  that  they  are  never  pre- 
sentable for  mere  acceptance,  but  only  for  payment."  2  Story's 
Eep.  512.  He  quotes  Chancellor  Kent  as  concurring  in  these 
yiews.    3  Kent,  104,  n. 

The  ordinary  commercial  form  of  a  Inll  of  exchange,  payable 
at  a  future  day,  is  at  so  many  days'  or  months'  notice  after 
date  or  sight.  An  order  so  drawn,  whether  upon  a  l;)anker  or 
any  other  person,  ought  to  be  regarded  as  a  bill  with  all  the 
privileges  and  liabilities  which  by  the  law  merchant  are  inci- 
dent to  a  bill.  The  drawer,  by  adopting  this  usual  form,  must 
be  held  so  to  intend.  So,  if  an  order  be  drawn  on  a  merchant 
or  other  person  not  a  banker,  with  whom  the  drawer  keeps 
money  on  deposit  subject  to  draft,  payable  at  a  future  day 
named,  there  exists  no  reason  why  the  same  rule  should  not 
apply.  But  there  is  a  good  reason  why  there  should  be  a  differ- 
ence between  an  order  so  drawn  upon  a  banker,  which  certainly 
must  be  presumed  to  be  by  a  person  who  keeps  money  on 
deposit  with  such  banker,  subject  to  draft,  and  an  order  on  a 
merchant  or  other  person.  If  such  an  order  drawn  upon  a 
bank,  payable  at  a  future  day  named  in  it,  must  be  considered 
as  an  inland  bill  of  exchange,  and  not  a  check,  then  the  payee 
or  holder  has  the  right  to  present  it  at  once  for  acceptance, 
protest  it  at  once  for  non-acceptance,  and  sue  the  drawer  imme- 
diately. Should  it  be  accepted,  however,  the  funds  of  the 
drawer  in  the  bank  would  necessarily  be  thereby  tied  up  until 
the  day  of  payment.  All  the  objects  of  directing  payment  at 
a  future  day  would  thus  be  frust-rated.  What  the  drawer  un- 
dertakes is,  that  on  a  day  named  he  will  have  the  amount  of 
the  check  to  his  credit  in  the  bank.  In  the  meantime  he  wants 
the  full  and  free  use  of  his  entire  deposit.  It  is  not  denied 
that  a  post-dated  check  cannot  be  presented  for  acceptaui^e. 
That  is  by  implication  payable  on  a  future  day.  Why  then  is 
a  check  expressly  so  made  payable  to  stand  on  different  ground? 

In  the  case  before  us  an  ordinary  printed  form  of  a  bank 
check  was  evidently  used,  and  the  day  of  presentment  written 
in  one  of  the  blanks.  This  is  the  most  convenient  form,  for 
it  calls  the  attention  of  the  cashier  or  paying  teller  to  the  fact 
which  he  would  be  likely  to  overlook  if  it  were  expressed  only 
by  the  date.     Xothing,  I  am  told,  is  more  common  than  such 


28-i  •  Checks.  [ch,  xxi. 

mistakes  in  the  payment  of  post-dated  checks,  and  depositors 
often  thus  find  their  account  overdrawn,  very  much  to  their 
embarrassment.  If  we  determine  that  an  order  like  that  before 
us  is  not  presentable  for  acceptance  before  maturity,  we  settle 
the  question.  It  is  a  check  and  not  a  bill  of  exchantre.  More 
than  twenty  years  ago  the  banks  of  Philadelphia,  under  the 
advice  of  their  counsel,  adopted  this  rule,  and  it  has  been  their 
uniform  practice  ever  since.  The  usage  of  the  banks  in  the 
commercial  metropolis  of  the  State  ought  to  have  great  weight 
in  determining  a  question  of  this  character.  It  is  perhaps  quite 
as  important  that  such  usage  should  not  be  disturbed,  as  that 
the  point  should  be  decided  abstractly  or  theoretically  right. 
It  was  so  held  in  1866  in  the  District  Court  of  Philadelphia, 
in  Lawson  v.  Pichards,  6  Pa.  Pep.  179,  a  case  in  which  the  most 
eminent  counsel  at  the  bar  were  concerned  for  the  defendant, 
and  that  determination  was  acquiesced  in." 

§  205.  Bank  bound  to  honor  checks,  when. 

A  bank  is  under  obligation  to  honor  checks  and  drafts  when 
presented  against  all  general  deposits,  w^here  a  balance  is  due 
from  the  bank  to  the  depositor  covering  the  amount  named 
and  called  for  by  the  check.  If  the  check  is  drawn  for  a  sum 
greater  than  such  balance,  the  bank  may  refuse  to  pay  the 
check  and  may  demand  that  the  check  be  drawn  for  an  amount 
not  to  exceed  the  balance  due  the  depositor. 

A  bank  is  held  liable  and  bound  to  pay  in  accordance  with 
the  depositor's  orders  in  ivriiing,  when  there  is  a  balance  to 
his  credit  sufficient  for  that  purpose.^^ 

The  Illinois  court  says  that  wdiere  "  the  depositor  has 
directed  a  payment  to  be  in  a  certain  manner,  a  payment  made 
otherwise  than  according  to  his  directions  is  no  discharge  of 
the  bank's  obligations  towards  him."  The  order,  however, 
must  be  one  that  the  bank  can,  in  the  course  of  its  business, 
comply  %\nth.  An  unreasonable  order  which  might  require  the 
bank  to  deliver  the  money  to  some  one  not  present  at  the  bank's 
counter  would  be  unusual  and  not  of  a  nature  demanding  a 
compliance. 

A  deposit,  as  stated,  made  in  current  funds  must  be  paid  in 

22  Watson     r.     Phcpiiix     Bank.     8  Mit.    (Mass.)    217:    First   Nat.   Bank 
r.  Pease,  68  111.    (App.)    562. 


CH.  XXI.]  Baxkixg.  285 

current  funds.  A  deposit  made  in  silver,  and  entered  as  such 
by  the  bank  at  the  time,  may  be  paid  in  silver.  The  bank  may 
pay  in  '^  kind  "  and  nothing  more  can  be  required  of  it.  The 
conditions  have  been  complied  with  when  the  depositor  receives 
in  "  kind  "  the  money  he  deposited. 

A  bank  kno^^'ing  that  a  check  is  void  and  pays  the  same,  does 
so  at  its  peril.  For  example:  Where,  by  the  statute,  the  prop- 
erty of  a  deceased  person  can  only  be  taken  possession  of  by 
an  administrator  appointed  by  the  court,  and,  before  such 
transfer  is  made,  a  check  drawn  by  the  deceased  before  death 
is  presented  to  the  bank  for  payment,  and  the  bank  being  in 
possession  of  such  facts  pays  the  check,  it  does  so  at  its  peril. 

So,  in  the  case  where  the  government  issued  its  pension 
check  to  a  deceased  person  whose  name  was  forged  and  the 
check  paid,  held  that  it  devolved  upon  the  bank  to  know  that 
the  party  endorsing  the  cheek  was  the  legal  holder.  The  gov- 
ernment could  recover  from  the  bank,  whose  duty  it  Avas  to 
detect  the  f orgery.^^ 

§  206.  Nature  and  effect  of  check. 

It  is  held,  in  the  case  of  Cowing  v.  Altman,  71  X.  Y.  435, 
that  a  check  has  no  validity  imtil  delivery.  In  some  juris- 
dictions, after  delivery,  it  is  regarded  as  an  assignment  of  the 
deposit  pro  tanto,  but  generally  it  does  not  have  this  effect  until 
it  has  been  accepted  by  the  drawee.  A  check  is  a  written  con- 
tract, and  an  oral  declaration  cannot  be  admitted  to  contradict 
or  vary  it;  but  between  the  original  parties,  exidence  may  be 
introduced  to  solve  ambiguities,  for  example — to  show  what 
person  or  bank  was  intended,  or  to  show  in  what  capacity  the 
drawer  signed.^* 

§  207.  Check  as  payment. 

A  cheek  which  has  been  given  upon  a  bank  in  the  ordinary 

course  of  business  for  a  debt,  it  is  not  payment  until  it  is  paid.^^ 

If  the  payment  of  a  check  be  refused  without  the  holder's 

23  United     States     v.    First    Nat.  14   Pa.   St.    171;    Sweet   r.   Stevens, 

Bank   of    Coffevville,    82    Fed.    Kei^.  7  R.  I.  375;  Cork  v.  Bacon,  45  Wis. 

410.                      ■  192. 

2-1  .Jackson   r.  Sill,   11   .Johns.    (N.  25  Keniieyer    r.    Newbv,    14    Kan. 

Y.)   201;  McCulIough  v.  Wainriglit,  164. 


286  Checks.  [ch. 


XXI. 


fault  or  nes:ligence  upon  his  part,  lie  may  resort  to  the  original 
indebtedness.^*^ 

The  holder  therefor  becomes  merely  the  agent  of  the  drawer 
in  getting  the  money  to  pay  his  debt.^^ 

§  208.  Revocation  of  checks. 

A  revocation  of  a  check  is  a  direction  given  orally  or  in 
writing  directly  to  a  bank  upon  which  a  check  has  been  pre- 
viously dra^ra,  that  when  it  is  presented,  to  refuse  payment. 
It  is  the  recall  of  a  power  or  authority  conferred. 

After  a  check  has  been  delivered,  it  may  be  revoked  and  the 
payee  must  look  to  the  drawer. 

If  the  check  has  been  presented  to  the  bank  and  accepted 
the  bank  cannot  refuse  payment. 

The  deposit  is  held  by  the  bank  subject  to  the  order  of  the 
owner  and  an  order  to  the  bank  to  refuse  payment  upon  a 
check  is  a  sufficient  justification  not  to  pay.  The  bank,  as  to 
the  direction  of  the  deposit  and  to  whom  it  must  be  paid  is, 
for  this  purpose,  an  agent  of  the  depositor. 

Tlie  rule  is  settled  that  the  drawer  may  coiinternmnd  payment 
of  his  check  either  hi/  giving  notice  orally  or  hy  a  icritteyi  notice 
delivered  to  the  hank. 

This  rule  has  been  enforced  from  time  immemorial. 

In  the  case  of  Dykers  v.  The  Leather  Manufacturer's  Bank, 
11  (Paige)  iST.  Y.  612,  "  where  a  customer  of  a  bank  had  given 
checks  to  different  individuals  for  a  much  larger  amount  than 
his  funds  in  the  bank,  and  finding  that  he  could  not  make  them 
all  good  during  banking  hours,  M-ent  to  the  bank  and  directed 
the  officers  not  to  pay  any  of  his  checks  until  further  orders 
from  him,  and  finally  drew  out  the  whole  of  his  funds  for  the 
purpose  of  making  a  ratable  disti-ilnition  thereof  among  the 
holders  of  all  the  checks.  Held,  that  the  owner  of  one  of  the 
checks  who  had  demanded  payment  thereof  from  the  bank 
after  the  direction  of  the  drawer  not  to  pay  it  and  before  the 
fund  was  drawn  out,  was  not  entitled  to  claim  the  amount 
thereof  against  the  bank.  *  *  *  And  where  different 
checks  are  presented  to  the  bank  at  the  same  time,  for  sums 

2fl  Bradford  r.  Fox,  38  N.  Y.  289.  27  Cromwell     r.     Lovett,     1     Hail 

(N.  Y.)    56. 


CH.  XXI.]  Baxkixg.  287 

which,  in  the  aggregate  exceed  the  amount  of  the  funds  of  the 
drawer,  the  officers  of  the  bank  are  not  bonnd  to  settle  the 
conflicting  claims  of  the  holders  of  the  different  checks  to 
priority  of  payment." 

The  Supreme  Court  of  the  State  of  Illinois  denies  the  rule 
as  presented  and  alleges  that,  where  a  depositor  draws  his 
check  on  his  banker  who  has  funds  to  pav  the  same,  it  operates 
as  a  transfer  of  the  sum  named  to  the  payee,  and  that  the 
payee  may  sue  for  and  recoyer  the  amount  from  the  bank. 

The  court  also  holds  that  after  a  check  has  passed  into  the 
hands  of  a  bona  fide  holder,  it  is  not  in  the  power  of  the  drawer 
to  countermand  the  order  of  payment. 

Mr.  Chief  Justice  Scott,  in  deliyering  the  opinion  of  the 
court,  says: 

"  This  action  is  upon  a  check  drawn  by  James  H.  Ledlie, 
on  the  Union  Xational  Bank  of  Chicago,  in  fayor  of  Under- 
bill and  Gray,  and  by  them  indorsed  and  deliyered  to  the 
Oceana  County  Bank,  located  at  Pentwater,  in  Michigan. 
The  declaration  contains  a  special  count  upon  the  check,  and 
also  the  common  money  counts.  On  the  trial,  plaintiff  re- 
coyered  a  judgment  for  the  amount  of  the  check,  with  in- 
terest, and  defendant  brings  the  cause  to  this  court  on  appeal. 

"  The  eyidence  shows  there  was  no  unreasonable  delay  in 
presenting  the  check  to  defendant  for  payment,  and,  not- 
withstanding it  is  shown  the  bank  had  funds  in  its  possession 
on  deposit  subject  to  check,  at  the  time,  belonging  to  the 
drawer,  in  excess  of  the  amount  of  the  check,  payment  was 
refused,  for  the  reason  the  drawer  had  preyiously  ordered  the 
bank  not  to  pay  it. 

"  The  facts  proyen  in  this  case  bring  it  clearly  within  the 
rule  declared  in  Munn  et  aJ.  y.  Burch  et  ah,  25  111.  35.  The 
doctrine  of  that  case  has  been  so  frequently  affirmed  in  other 
cases  in  this  court,  it  is  not  necessary  now  to  discuss  it  as  a 
new  question.  The  principle  of  all  the  cases  in  this  court  on 
this  subject  is,  that,  when  a  depositor  draws  his  check  on  his 
banker,  who  has  funds  to  an  equal  or  greater  sum  than  his 
check,  it  operates  to  transfer  the  sum  named  to  the  payee,  who 
may  sue  for  and  recover  the  amount  from  the  bank,  and  that  a 
transfer  of  the  check  carries  Mnth  it  the  title  to  the  amount 
named   in   the   check   to   each   successiye   holder.     After    the 


288  Checks.  [ch.  xxi. 

check  has  passed  to  the  hands  of  a  bona  fide  holder  it  is  not 
in  the  power  of  the  drawer  to  countermand  the  order  of  pay- 
ment. The  case  at  bar  is  controlled  by  this  principle,  and  we 
content  ourselves  by  simply  making  reference  to  our  former 
decisions,  Avhere  it  is  declared.  The  Chicago  Marine  &  Fire 
Ins.  Co.  v.  Stanford,  28  111.  108;  Bickford  v.  First  Nat.  Bank, 
42  id.  238;  Brown  v.  Leckie  et  al,  43  id.  497. 

"Adhering,  as  de  do,  to  the  doctrine  of  the  cases  cited, 
we  are  of  the  o})inion  the  evidence  offered  to  prove  facts  es- 
tablishing a  defense  as  between  the  drawer  and  the  drawees 
of  the  check  was  properly  rejected."  ^® 

The  States  holding  that  the  drawer  can  rcA^oke  his  order  at 
any  time  before  the  bank's  acceptance  of  the  check,  and  that 
the  bank  is  bound  by  such  reyocation,  are:  Massachusetts, 
Charles  Eiver  Nat.  Bank  v.  Davis,  100  Mass.  413.  Mis- 
souri, Albers  v.  Commercial  Bank,  85  Mo.  173,  55  Am.  Rep. 
355;  Famous  Shoe  Co.  v.  Crosswhite,  51  Mo.  App.  55.  New 
York,  Lunt  v.  Bank  of  North  America,  49  Barb.  (N.  Y.)  221; 
Schneider  v.  Irving  Bank,  1  Daly  (N.  Y.)  500,  30  How.  Pr. 
fN.  Y.)  190.  Ohio,  Kahn  v.  Walton,  46  Ohio  St.  195,  20 
N.  E.  Rep.  203.  Pennsylvania,  German  Nat.  Bank  v.  Farm- 
er's Deposit  Nat.  Bank,  118  Pa.  St.  294;  Saylor  v.  Bushong, 
100  Pa.  St.  23,  45  Am.  Rep.  353. 

The  Supreme  Court  in  the  case  of  The  German  Nat.  Bank 
V.  The  Farmers'  Deposit  Nat.  Bank,  118  Pa.  St.  294,  in  dis- 
cussing the  question  as  to  the  right  of  the  drawer  of  a  check 
to  countermand  payment  of  the  same,  says: 

"As  I  understand  the  case  there  are  but  two  principles  in- 
volved, viz.:  (a)  Had  the  Germania  Savings  Bank  the  right 
to  stop  payment  on  the  check,  and  (b)  if  so,  was  the  right 
exercised  in  time,  that  is  to  say,  before  actual  payment  ?  All 
other  material  questions  in  the  case  are  but  subdivisions  of 
these. 

"  I  presume  no  one  at  this  day  questions  the  right  of  the 
drawer  of  a  check  to  stop  the  payment  thereof.  This  is 
usually  dene  by  notice  to  the  bank  upon  which  the  check  is 
drawn.  If  the  bank  pays  after  such  notice  it  docs  so  at  its 
])('ril.     The  holder  of  a  check  has  no  remedy  against  a  bank 

28Tlie  Union  Nat.  Bank  v.  OceanaCo.  Bank,  80  111.  212. 


CII. 


XXI.]  Baxkixg.  289 


upon  which  a  check  is  drawn  for  its  refusal  to  pay  it.  He 
must  look  to  the  drawer.  The  right  to  stop  payment  ceases 
of  course  with  actual  payment." 

While  the  rule  in  Illinois  is  directly  contrary  to  that  laid 
down  by  the  New  York  courts,  the  preponderance  of  au- 
thority sustains  the  rule  that  the  drawer  may  at  any  time  be- 
fore acceptance,  countermand  the  payment  of  his  check,  and 
that  the  bank  cannot  be  held  responsible  in  a  suit  brought 
by  the  payee.  The  bank  can  then  refuse  payment  and  is  not 
compelled  to  ascertain  the  fact  that  the  holder  of  the  check 
has  notice  of  its  withdraAval. 

A  claim  by  the  payee  made  to  the  bank  that  he  has  had  no 
notice  from  the  drawer  of  the  check  that  payment  has  been 
countermanded,  can  make  no  difference.  The  bank  may,  af- 
ter such  notice  is  given  by  the  holder  of  the  check,  pay  another 
check  dra^ATi  by  the  owner  of  the  deposit.  The  bank  is  not 
a  party  subject  to  be  brought  into  the  differences  which  may 
exist  or  be  the  cause  of  the  revocation.  The  payee,  the  courts 
hold,  must  look  to  the  drawer. 

The  payee  of  a  check,  where  there  has  been  no  revocation, 
and  upon  refusal  of  the  bank  to  pay,  must  look  to  the  drawer, 
and  where  notice  has  been  given  that  payment  has  been  counter- 
manded, the  rule  is  strengthened  that  the  payee  cannot  sue 
the  bank. 

Where  the  check  has  been  certified  by  the  bank  but  before 
payment  has  been  made,  a  notice  is  given  to  the  bank  that 
the  check  has  been  revoked,  the  notice  comes  too  late.  The 
bank,  upon  certification  by  the  act  of  certification,  charges  the 
account  of  the  drawer  with  the  check,  and  from  that  date  the 
bank  enters  into  a  new  relation  with  the  payee  and  agrees  to 
pay  him  the  amount  so  certified. 

An  attachment  or  garnishment  of  the  funds  deposited  by 
the  drawer,  revokes  payment  or  stops  payment  of  all  checks 
imtil  the  question  is  judicially  determined. 

Death  revokes  payment  where  the  bank  has  notice  before 
the  check  is  presented. 

This  rule  works  a  great  hardship  in  many  instances,  but  the 

weight   of   authority  sustains   it   evidently   upon   the   sensible 

reasoning  that  the  execution  and  delivery  of  a  check  is  not  a 

payment  or  a  transfer  of  the  funds.     It  is  an  order  which  may 

19 


290  Checks,  [ch.  xxi. 

be  revoked  at  any  time  by  the  drawer  of  the  check,  and  no 
reason  for  the  revocation  need  be  given  to  the  bank. 

A  bank  cannot  safely  pay  checks  presented  after  death.  If 
it  did  so,  it  would  become  involved  in  law^-suits  without  num- 
ber. Therefore,  the  sensible  rule  that  governs  and  controls 
all  the  property  of  the  deceased  at  the  time  of  his  death  is, 
that  all  property  passes  by  the  law  into  the  hands  of  de- 
ceased's legal  representatives,  and  all  unpaid  checks  are 
revoked. 

§  209.  Presentment  for  payment. 

This  subject  is  treated  only,  first,  as  to  the  duties  of  the 
payee  receiving  a  check  in  presenting  the  same  for  payment; 
and,  second,  as  to  the  duties  of  the  bank  to  pay  or  refuse 
pajnnent. 

This  eliminates  all  persons  other  than  the  payee  to  whom 
the  check  is  made  payable,  the  drawer  (the  party  who  makes 
the,  check),  and  the  drawee  (the  bank  that  is  requested  to  pay 
the  same. 

The  general  rule  is  that  the  payee  is  not  bound  to  present 
the  cheek  for  payment  on  the  day  of  its  date  or  receipt,  but 
may  hold  the  same  and  present  it  to  the  bank  for  payment  at 
any  time  prior  to  t]]e  running  of  the  Statute  of  Limitations. 
When  presented,  if  not  paid  by  the  bank,  it  is  an  evidence 
of  an  unsatisfied  debt. 

It  has  been  held  that  a  failure  to  present  a  check  within 
a  reasonable  time  (and  a  reasonable  time  is  one  wdiich  de- 
pends upon  the  circumstances  of  each  case)  or  use  due  dili- 
gence (Avhich  is  a  question  for  the  jury),  will  discharge  the  in- 
dorsers,  but  not  the  drawers  of  the  check.  The  failure  by  the 
payee  to  present  the  check  for  payment  within  a  reasonable 
time  does  not  discharge  the  debt,  but  the  drawer  of  the  check 
(it  is  held)  if  laches  or  negligence  is  shown  in  presenting  the 
check,  may  be  absolved,  at  least  to  the  extent  of  his  injury. 

This  introduces  the  question:  What  is  the  drawer's  in- 
jury? There  can  be  no  injury  to  the  drawer  if  the  check,  when 
presented,  is  paid  by  the  bank. 

The  presumption  of  law  is,  that  the  check  when  dra^m  and 
delivered  to  the  payee,  represents  a  debt  which  the  drawer 
intends  to  cancel.     It  is  also  a  presumption  of  law,  that  at  the 


ClI. 


XXI.]  Baxkixg.  291 


time  of  the  execution  of  the  check,  the  drawer  has  made  pro- 
vision for  the  payment  of  the  same  by  placing  the  money  in  the 
bank.  And  upon  what  theory  of  reasoning  can  it  be  claimed 
that  by  a  failure  of  the  payee  to  present  the  check  within  a 
reasonable  time,  the  drawer  is  injured  ? 

The  drawer  has  given  the  check  and  by  depositing  the  money 
in  the  bank  has  provided  for  its  payment.  The  money  is  sup- 
posed to  be  set  aside  for  that  purpose,  and  if  the  payee  fails 
to  present  his  check  and  draw  it,  there  can  be  no  injury  to  the 
drawer.  The  injury,  if  any,  is  one  which  the  payee  has  brought 
upon  himself  by  his  o^^^l  negligence,  and  he  is  the  party  who 
must  suffer  the  financial  loss,  if  any,  which  is  brought  about 
by  his  own  negligence. 

While  the  payee's  right  of  action  is  against  the  drawer  of 
the  check,  if  the  bank  refuses  or  fails  to  pay  the  same,  a  com- 
plete defense  by  the  drawer  would  be  to  show. that  the  payee 
failed  to  use  due  diligence  in  presenting  the  check. 

The  drawer  of  the  check  cannot  recover  damages  upon  the 
ground  that  the  payee  failed  to  do  a  thing,  which  failure 
operated  as  a  detriment  to  him  (the  payee),  because  he  (the 
drawer)  has  suffered  no  injury. 

When  "A."  draws  a  check  to  "  B.  "  for  funds  then  stand- 
ing to  his  credit  on  the  books  of  the  bank,  as  between  ''A."  and 
"  B.,"  the  funds  are  supposed  to  be  transferred  at  once  to 
"  B."  Thereafter  "A."  should  not  draw  checks  against  the 
money  which  he  has  transferred  by  check  to  "  B."  Between 
the  drawer  of  the  check  and  the  bank,  there  can  be  no  change 
of  relationship  as  to  the  funds  deposited,  until  the  payee  pre- 
sents his  check  for  acceptance  or  payment. 

Jf  the  payee  fails  to  use  due  diligence  in  presenting  his 
check  and  the  bank  suspends  payment  and  closes  its  doors,  he 
releases  the  drawer  and  must  look  to  the  bank  for  payment. 
lie  has  "  slept  upon  his  rights."  ^^ 

It  is  advisable,  therefore,  in  view  of  the  fact  that  the  bank 
may  become  insolvent  or  that  the  drawer  of  the  check  may 
■vWthdraw  the  funds  from  the  bank  before  pavment,  to  present 
the  same  at  the  earliest  time  possible,  which,  if  done,  is  a  reason- 
able time  and  is  due  diligence. 

29  First   Nat.    Bank   of   Charlotte  i'.  Alexander,  84  N.  C.  30. 


292  Checks.  [ch.  xxr. 

The  rule  of  "  due  diligence,"  as  stated  in  a  previous  chapter 
may  again  be  stated  here,  and  is  as  follows: 

"  Where  the  payee's  check  is  on  a  hank  which  is  located  in 
the  town  or  city  in  which  the  payee  lives,  the  check  should  he 
presented  for  payment  within  hanking  hours  on  the  day  follow- 
ing the  day  of  its  receipt.  If  the  hank  upon  which  the  check  is 
draum  is  located  and  doing  husiness  in  a  town  or  city  other  than 
the  residence  or  place  of  husiness  of  tlie  payee,  the  check  must 
he,  on  the  day  of  its  receipt  hy  the  payee  or  within  hanking 
hours  on  the  day  following,  sent  hy  mail  to  the  drawer  or  depos- 
ited for  collection  with  a  hanker." 

The  payee,  having  at  the  earliest  time  jDossible  presented  the 
check,  cannot  suffer  injur)'  or  loss  by  his  own  negligence  or  lack 
of  diligence. 

This  brings  us  to  the  second  question  as  to  the  duty  of  the 
bank  to  pay  or  refuse  payment  of  a  check. 

It  may  be  stated  that  the  general  rule  is,  it  is  the  duty  of 
a  bank  to  pay  a  check  which  is  properly  drawn  and  presented 
to  the  bank  within  banking  hours. 

If  the  check  lacks  any  of  the  essential  elements  and  discloses 
upon  its  face  a  suspicion  as  to  its  genuineness,  and  the  bank 
becomes  satisfied  that  its  defects  are  material,  it  is  the  duty  of 
the  bank  to  refuse  payment  and  immediately  notify  the  drawer. 

If  the  check  on  presentation  is  properly  drawn  and  fulfills 
all  the  essential  requisites,  and  the  drawer  has  on  deposit 
sufficient  funds  to  meet  the  same,  it  is  the  duty  of  the  bank  to 
pay  the  check,  and  if  it  refuses,  it  will  be  liable  in  a  suit  by 
the  drawer  for  damage  sustained. 

§  210.  Mistake  of  bank  in  payment  of  check. 
The  general  rule  is,  that  if  a  hank  honors  and  pays  a  check 
mider  a  mistake  of  fact,  it  may  sue  for  recovery  of  the  money, 
hut  if  it  pay  a  check  under  a  mistake  of  law,  the  money  cannot 
he  recovered. 

In  the  case  of  Redington  v.  Woods,  45  Cal.  40G,  the  courts 
hold  that  where  the  drawee  pay  to  an  innocent  holder 
a  check  which  has  been  fraudulently  altered  in  amount  after 
it  left  the  hands  of  the  drawer,  he  will  be  entitled  to  recover 
back  from  the  person  to  whom  it  was  paid,  the  excess  over 
the  true  amount  of  the  check,  unless  the  alteration  is  made 


cii.  5X1.]  Backing.  293 

in  such  a  manner  that  on  the  face  of  the  paper  there  appears 
enongh  evidence  to  excite  suspicion  of  fraud,  or  the  drawee  has 
information  which  would  lead  a  prudent  person  to  suspect  that 
the  check  had  been  altered. 

The  court,  in  discussing  this  question  says: 

"  When,  therefore,  the  holder  presents  a  check  or  bill  for 
payment,  the  title  to  which  he  derives  through  prior  indorse- 
ments, he  undertakes  with  the  drawee  that  the  indorsements 
are  genuine,  and  that  he  has  a  valid  title,  and  consequently,  a 
right  to  receive  the  money.  If  it  afterward  transpires  thrt 
one  or  more  of  the  indorsements  are  forged,  the  drawee  will 
be  entitled  to  recover  back  the  money  from  the  person  to 
whom  he  paid  it,  on  the  ground  that  the  latter  had  no  title 
to  the  bill  or  check,  and  the  payment  was,  therefore,  made 
without  consideration,  under  an  innocent  mistake.  But  the 
indorsement  of  the  holder  receiving  payment  can  have,  at 
most,  no  greater  legal  significance  than  this.  It  implies,  at 
best^  only  an  undertaking  that  he  has  a  valid  title  to  the  bill 
or  check,  and  consequently  a  right  to  receive  payment  —  an 
implication  wdiich  the  law  raises  without  the  indorsement. 
But  the  indorsement,  proprio  vigore,  imposes  upon  him  no 
other  or  greater  liability  to  refund  money  paid  upon  an  al- 
tered check  than  would  attach  to  him  without  the  indorsement. 

"  In  other  words,  the  indorsement  does  not,  of  itself,  import 
an  undertaking  that  the  check  has  not  been  altered,  and  in 
proceedings  to  recover  back  the  amount  paid  on  an  altered 
check,  the  indorsement  could  not  be  made  the  foundation  of 
the  action,  as  importing  a  promise  to  refund  the  money,  in 
case  it  should  afterward  appear  that  the  amount  in  the  body 
of  the  check  had  been  fraudulently  altered.  In  such  cases 
the  right  of  recovery  does  not  rest,  in  whole  or  in  part,  upon 
the  indorsement,  as  importing  such  a  promise,  but  upon  the 
fact  that  the  money  was  paid  by  the  drawee  without  con- 
sideration, under  an  innocent  mistahe.  The  authorities  in  sup- 
port of  this  view  of  the  question  are  numerous  and  uniform, 
and  we  have  been  referred  to  none  to  the  contrary." 

"  Where  a  bank  pays  money  by  mistake  to  the  payee  of  the 
check  which  the  bank  has  been  instructed  by  the  drawer  not 
to  pay,  and  there  is  no  suggestion  that  the  check  -vvas  given 
to  the  payee  as  a  gratuity  or  merely  for  his  accommodation, 


294  Checks.  [ck.  xx 


XXI. 


the  bank  must  first  tender  the  check  to  the  payee  before  bring- 
ing an  action  to  recover  the  money  so  paid." 

The  Supreme  Court  of  the  State  of  Massachusetts,  in  the 
case  of  The  Northampton  Xational  Bank  v.  Charles  H.  Smith, 
1G9  Mass.  281,  in  discussing  this  subject,  says: 

''  This  action  is  brought  to  recover  money  paid  by  mistake 
by  the  plaintiff  to  the  defendant,  upon  a  cheek  vhicli  the  plain- 
tiff had  been  instructed  by  the  drawer  not  to  pay.  The  state- 
ment of  facts  is  imperfect,  but  it  is  said  in  the  plaintiff's  brief 
that  the  check  was  drawn  upon  the  plaintiff  by  one  Herbert  in 
favor  of  the  defendant,  and  given  by  him  to  the  defendant. 
There  is  no  suggestion  that  it  was  so  given  as  a  gratuity  or 
merely  for  the  defendant's  accommodation,  and  we  assume 
that  it  was  not  so  given.  Payment  had  once  been  demanded 
and  refused,  but  on  a  second  presentation  of  the  check  several 
weeks  later  it  w^as  paid  through  inadvertence.  The  plaintiff 
demanded  a  return  of  the  money  without  tendering  the  check 
to  the  defendant,  and  there  was  no  such  tender  until  the  day  of 
the  trial.  The  only  question  wdiich  has  been  presented  to  us 
is,  -whether  it  was  necessary  to  tender  the  check  before  bring- 
ing the  action,  and  we  think  it  was. 

It  has  often  been  held  that,  when  one  wishes  to  rescind  a 
contract  and  recover  what  he  has  paid  under  it,  he  must  first 
restore  whatever  of  value  he  has  received.  Snow  v.  Alley,  14  t 
Mass.  546,  551;  Bartlett  v.  Drake,  100  Mass.  174,  176.  The 
reasons  for  this  rule  are  fully  applicable  to  the  present  case. 
The  check,  if  unpaid,  belonged  to  the  defendant  and  would  be 
useful  and  valuable  to  him  to  be  used  in  connection  with  his 
own  testimony  in  establishing  a  claim  against  Herbert.  It 
has  been  held  that  anything  absolutely  worthless,  like  a  counter- 
feit bill,  need  not  be  returned.  Brewster  v.  Burnett,  125  Mass. 
68 ;  Kent  v.  Bornstein,  12  Allen  (Mass.)  342  ;  Snow  v.  Alley, 
144  Mass.  546,  551 ;  Reed  v.  Boston  Machine  Co.,  141  Mass. 
454.  But  the  check  in  the  present  case  was  not  of  that  char- 
acter. If,  upon  its  presentation  payment  had  been  refused, 
the  plaintiff  would  have  had  no  right  to  retain  possession  of 
it,  and  such  retention  against  the  defendant's  will  would  have 
been  a  conversion.  And  if  after  a  payment  had  been  made 
through  inadvertence  or  mistake,  the  plaintiff  sought  to  en- 
force a  return  of  the  money,  it  was  its  duty  first  to  tender  the 


cii.  XXI.]  Banking.  295 

check  to  the  defendant.     It  would  be  of  use  to  him  and  he  was 
entitled  to  have  it  before  returning  the  money. 

"  The  case  of  Evans  v.  Gale,  21  X.  II.  240,  is  much  in  point, 
and  the  doctrine  of  this  decision  was  affiniied  in  Cook  v.  Gil- 
man,  3-1  X.  II.  556.  The  same  doctrine  is  implied  in  Coolidge 
v.  Brigham,  1  Met.  547,  550;  Merchants'  Xational  Bank  v. 
National  Eagle  Bank,  101  Mass.  281,  285;  Estabrook  v.  Swett, 
116  Mass.  303,  and  Bassett  v.  Brown,  105  Mass.  551,  558. 
See  also  Otisfield  v.  Mayberry,  03  Me.  197 ;  Park  v.  McDaniels, 
37  Vt.  594." 

''In  an  action  by  one  bank  against  another  to  recover  back 
the  amount  of  a  check  paid  through  the  clearing-house  under 
a  mistake  of  fact  caused  by  the  fraud  of  the  drawer,  the 
measure  of  damages  is,  the  difference  between  the  amount  of 
the  check  and  the  amount  for  which  he  was  entitled  to  draw, 
and  the  fact  that,  where  there  is  not  enough  money  on  deposit 
to  pay  a  check  in  full,  the  ordinary  custom  is  to  return  the 
check,  is  immaterial."  ^^ 

Where  a  bank  pays  a  check  under  a  mistake  of  law,  i.  e.,  in 
ignorance  of  the  law,  but  with  a  full  knowledge  of  the  facts, 
it  cannot  be  recovered  back. 

The  Supreme  Court  of  the  State  of  Missouri,  in  the  case 
of  The  Mutual  Savings  Institution  v.  Enslin,  46  Mo.  200,  says: 

"  Now,  if  the  plaintiffs  paid  over  to  the  defendant  the  pro- 
ceeds of  that  note  "  (check)  "  under  a  mistake  of  law  merely, 
and  not  under  a  mistake  of  fact,  they  are  not  entitled  to  re- 
cover back  the  money  so  paid.  In  assuming  to  judge  of  the 
legal  rights  of  the  rival  claimants,  mthout  referring  the  matter 
to  the  courts  and  paying  according  to  their  view  of  those  legal 
rights,  they  acted  at  their  peril  and  must  submit  to  the  conse- 
quences. It  is  a  well-settled  principle  that  money  paid  under 
mistake  or  ignorance  of  the  law,  but  with  a  knowledge  of  the 
facts  or  the  means  of  such  knowledge,  cannot  be  recovered 
l)ack  from  the  party  to  whom  it  was  paid.  2  Greenl.  Ev., 
?  123;  Chit.  Cont.  (7th  ed.),  626,  627.  And  see  the  authori- 
ties cited  in  note  1,  p.  628;  Tyler  v.  Smith,  18  B.  Mon.  793; 
City  of  Marietta  v.  Slocomb,  6  Ohio  St.  471." 

"  When  pa\Tnent  is  made  to  the  holder  of  paper  who  has 

so  Jlercliants'  Bank  v.  Bank  of  the  Commonwealth,   139  Mass.  513. 


296 


Checks. 


[CII.  XXT, 


come  into  possession  of  it  Avitlioiit  anv  fault  on  his  part,  and 
his  situation  would  be  rendered  worse  if  compelled  to  refund 
than  it  was  before  receiving  payment,  the  money  cannot  be 
recovered  from  him."  ^^ 

''  To  justify  the  payee  in  holding  and  retaining  the  money, 
the  bank  alone  must  have  been  negligent." 

The  above  rule  is  sustained  by  the  States  in  the  follo"\nng 
order : 

Illinois,^^  Kentucky,^^  Louisiana,^"*  Maine,''^^  Maryland,-"^ 
Massachusetts,^^  Minnesota,^*  Xew  Hampshire,"^  Xew  York,^^ 
Ohio,^^   Pennsylvania,*^   Texas,'*^  Vermont,**   United  States.*^ 

The  rule  is  that,  if  "  neither  party  has  been  negligent  or 
both  have  been,  then  the  bank  can  recover  the  money."  **^ 

§  211.  Forged  checks,  bank  pajring. 

The  rule  is  settled  that  a  bank  which  pays  a  check  on  a 
forged  indorsement  has  no  rights  against  the  drawer.      The 


31  Cyclopedia  of  Law  and  Proce- 
dure, Vol.  5,  p.  546,  and  authorities 
there  cited. 

32Quincv  First  Nat.  Bank  r. 
Ricker,  Tl'lll.  439,  22  Am.  St.  Rep. 
104. 

33  Georgetown  Deposit  Bank  r. 
Fayette  Xat.  Bank,  90  Kv.  10,  11 
Kv.  L.  Rep.  803,  13  S.  W.  339,  7 
L.'  R.  A.  849. 

34  Levy  i\  Bank  of  America,  24 
La.  Ann.  220,  13  Am.  Rep.  124:  De 
Feriet  r.  Bank  of  America,  23  La. 
Ann.  310,  8  Am.  Rep.  597;  McKle- 
rov  r.  Southern  Bank,  14  La.  Ann. 
4.58,  74  Am.  Dec.  438 ;  Smith  r.  Me- 
chanics', etc..  Bank,  G  La.  Ann.  610. 

35Xeal  V.  Coburn,  92  Me.  139.  42 
Atl.  .348,  69  Am.  St.  Rep.  495;  Bel- 
knap V.  Davis,  19  Me.  455. 

30  Commercial,  etc.,  Nat.  Bank  r. 
Baltimore  First  Nat.  Bank,  30  Md. 
11,  9(;  Am.  Dec.   554. 

3TDedham  Nat.  Bank  r.  Everett 
Nat.  Bank,  177  Mass.  392,  59  N.  E. 
62.  83  Am.  St.  Rep.  286;  Danvers 
First  Nat.  Bank  r.  Salem  First  Nat. 
Bank,  151  Mass.  280.  24  N.  E.  44, 
21  Am.  St.  Rep.  450:  Welch  r.  Good- 
win, 123  Mass.  71,  25  Am.  St.  Rep. 
24;  National  Bank  of  North  Amer- 
ica V.  Bungs,  106  Mass.  441,  8  Am. 
Rep.  349;  Gloucester  Bank  r.  Salem 


Bank,  17  Mass.  33  ;  Young  v.  Adams, 

6  Mass.  182;  Belknap  r.  National 
Bank  of  North  America,  100  Mass. 
376.  97  Am.  Dec.  105. 

38Gerniania  Bank  r.  Boutell,  60 
Minn.  189.  62  N.  W.  327,  51  Am. 
St.  Rep.  519,  27  L.  R.  A.  635. 

39  Star  F.  Ins.  Co.  r.  New  Hamp- 
shire Nat.  Bank,  60  N.  H.  442. 

40  National  Park  Bank  r.  New 
York  Ninth  Nat.  Bank,  46  N.  Y.  77, 

7  Am.  Rep.  310:  Goddard  r.  Mer- 
chants' Bank,  4  N.  Y.  147 ;  Bank  of 
Commerce  r.  Union  Bank,  3  id.  2.'50 : 
Canal  Bank  r.  Albany  Bank,  1  Hill 
(N.  Y.)   287. 

41  Ellis  r.  Ohio  Life  Ins.,  etc.,  Co.,. 
4  Ohio  St.  628,  64  Am.  Dec.  610. 

42  LcN-y  r.  United  States  Bank,  4 
Dallas  (U.  S.)  234,  1  L.  Ed.  814,  1 
Binn.    (Pa.)    27. 

43  Rouvant  r.  San  Antonio  Nat. 
Bank,  63  Tex.  610. 

44  St.  Albans  Bank  r.  Farmers', 
etc..  Bank,  10  Vt.  141,  33  Am.  Dec. 
188. 

45  L'nitcd  States  Bank  r.  Georgia 
Bank,  10  ^Yheat.  (U.  S.)  333,  6  L. 
Ed,  334 ;  United  States  v.  New  York 
Nat.  Park  Bank,  0  Fed.  852. 

4*5  Leavenworth  First  Nat.  Bank 
r.  Tappan,  6  Kan.  456,  7  Am.  Rop. 
568. 


cii.  XXI.]  BAXKI^'G.  297 

discovery  by  the  bank  of  its  error  makes  no  difference.  The 
banker  is  bound  to  know  the  handwriting  of  its  customer.  If 
lie  pays  a  check  which  has  been  forged,  the  mistake  is  his. 

The  rule  is  so  well  established,  it  seems  almost  unnecessary 
to  cite  cases  in  support  of  it.  The  question  is  one  of  import- 
ance, however,  and  has  so  frequently  been  discussed  by  the 
courts  of  the  various  States  it  is  deemed  advisable  to  here 
give  the  citation  of  cases  treating  upon  this  subject  as  pre- 
sented by  the  Cyclopedia  of  Law  and  Procedure,  Vol.  5,  page 
548: 

California,*'''  Connecticut/^  District  of  Columbia,*^  Georgia,"'*^ 
Illinois,'*^  Iowa,^2  Kentucky,^^  Maryland,^^  Massachusetts,^^ 
Missouri,^  Xew  York,^'^  Tennessee,^^  Utah,^^  United  States,*'* 
England,*^^ 

Where  a  bank  pays  a  check  upon  an  indorsement  made  not 
by  the  true  owner  but  by  a  person  having  the  same  name  of 
the  true  OA\mer,  it  must,  when  called  upon,  make  good  the 
amount  to  (the  drawer)  or  the  true  o\\Tier. 

In  the  case  of  Graves  v.  The  American  Exch.  Bank,  17 
N.  Y.   203,  in  discussing  this  question,  the  court  holds  that 

47  Hatton  V.  Holmes,  97  Cal.  208,  Y.  318,  27  N.  E.  371,  22  Am.  St.  Rep. 
31  Pac.  1131.  821,  12  L.  R.  A.  791;  Citizens'  Nat. 

48  Bristol  Knife  Co.  r.  Hartford  Bank  v.  Importers',  etc.,  Bank,  119 
First  Nat.  Bank,  41  Conn.  421,  19  N.  Y.  195,  23  N.  E.  540;  Corn  Ex- 
Am.  Rep.  517.  change  Bank  v.  Nassau  Bank,  91  N. 

49  Millard  r.  National  Bank  of  Re-  Y.  74,  43  Am.  Rep.  655 ;  Thompson 
public,  3  MacArthur  D.  C.  54.  i\  Bank  of  British  North  America, 

50  Freeman  r.  Savannah  Bank,  82  N.  Y.  1 ;  ^^tna  Nat.  Bank  v.  New 
etc,  Co..  88  Ga.  252,  14  S.  E.  577 ;  York  City  Fourth  Nat.  Bank,  46  N. 
Atlanta  Nat.  Bank  v.  Burke,  81  Ga.  Y.  82,  7 'Am.  Rep.  314;  Morgan  r. 
597,  7  S.  E.  738,  2  L.  R.  A.  96.  State  Bank,   11  N.  Y.  404. 

51  Chicago  First  Nat.  Bank  r.  58  Jackson  r.  McMinnville  Nat. 
Northwestern  Nat.  Bank.  152  111.  Bank,  92  Tenn.  154,  20  S.  W.  802, 
296,  38  N.  E.  739.  43  Am.  St.  Rep.  36  Am.  St.  Rep.  81,  18  L.  R.  A. 
247,  26  L.  R.  A.  289.  663;   Pickle  v.  Muse,  88  Tenn.  380, 

52  German  Sav.  Bank  r.  Citizens'  12  S.  W.  919,  17  Am.  St.  Rep.  900, 
Nat.  Bank,  101  Iowa,  530.  70  N.  W.  7  L.  R.  A.  93. 

769,  63  Am.   St.  Rep.  399.  59  Brixen  v.  Deseret  Nat.  Bank,  5 

53  Henderson  Trust  Co.  r.  Ragan,       Utah,  504,  18  Pac.  43. 

21  Ky.  L.  Rep.  601,  52  S.  W.  848;  60  Washington  First  Nat.  Bank  r. 

Rice  V.  Citizens'  Nat.  Bank,  21  Ky.  Whitman,   94  U.   S.   343,  24  L.  Ed. 

L.  Rep.  346,  51  S.  W.  454.  229;     United     States     r.     National 

54  Williams  r.  Drexel,  14  Md.  566.  Exchange  Bank.  45  Fed.  163. 

55  Belknap  r.  National  Bank  of  6i  Roberts  v.  Tucker,  16  Q.  B.  560, 
North  America,  100  Mass.  376,  97  15  Jur.  987.  20  L.  J.  Q.  B.  270.  71 
Am.  Dec.  105.  E.   C.  L.   560:    Beeman  r.   Duck.    12 

56  J.  M.  Houston  Grocery  Co.  r.  L.  J.  Exch.  198.  11  M.  &  W.  251; 
Farmers'  Bank,  71  Mo.  App.   132.  Mead  r.  Young,  4  T.  R.  28,  2  Rev. 

57  Shipman  r.  State  Bank,  126  N.  Rep.  314. 


2Uy  Checks.  [en.  xxi. 

the  Lank  is  bound  to  nscertain  that  the  person  to  whom  it 
makes  payment  is  the  genuine  payee  or  is  authorized  by  him 
to  receive  it. 

The  opinion  of  the  court,  which  was  written  by  Comstock.  J., 
though  confirmed  by  the  judges  is  dissented  to  by  Justice 
Koosevelt.  The  dissenting  opinion  is  of  sufficient  importance 
bearing  upon  this  question  to  justify  a  full  citation: 

''  There  were  two  persons  of  the  name  of  Charles  F. 
Graves.  The  drawer  of  the  bill  in  question,  directed  the 
American  Exchange  Bank  to  pay  $240  to  the  order  of  Charles 
F.  GraA'es.  '  Fredonia,  N.  Y.,'  was  the  designated  residence 
of  the  drawer,  and  '  New  York  '  that  of  the  drawees.  The 
payee  had  no  designation  but  his  name;  none  at  all  events 
was  given  by  the  drawer.  The  bank  in  good  faith  paid  the 
draft  to  a  person  presenting  it  with  the  indorsement  of  Charles 
F.  Graves,  a  genuine  indorsement,  but  not  the  indorsement, 
it  is  said,  of  the  genuine  Graves.  Which  of  the  two,  under 
these  circumstances,  should  bear  the  loss  —  the  drawer  who 
carelessly  omitted  all  designation,  or  the  drawees  who  in- 
nocently paid  the  wrong  person  in  consequence  of  such  omis- 
sion? As  between  these  parties,  the  loss,  it  seems  to  me, 
should  fall  on  the  former.  iN^or  do  I  perceive  that  the  payee, 
the  quasi  assignee  of  the  drawer,  occupies  any  better  position 
than  his  assignor.  Hurd  was  his  debtor,  and  bought  the  draft 
to  remit  in  payment  of  the  debt.  Hurd  directed  the  form.  He 
did  nothing  to  supply  the  drawer's  omission,  but  aggravated 
the  error  by  another  of  his  own;  he  mailed  the  draft  to  Charles 
F.  Graves,  La  Salle,  Illinois,  intending  it,  he  says,  for  Charles 
F.  Graves,  Mendota,  Hlinois,  the  two  places  being  only  fifteen 
miles  a])art.  He  candidly  admits  he  '  made  a  mistake  in 
directing  the  letter,  and  that  he  should  have  directed  it  to 
Mendota  instead  of  La  Salle.'  He  thus  by  his  own  act  put 
the  draft  into  the  hands  of  the  La  Salle  Graves,  and  held  out 
tlie  La  Salle  (iraves  as  the  real  payee.  Can  he  complain,  then, 
that  the  Exchange  Bank  recognized  his  indorsement  ?  Must 
they  pay  twice  because  he,  after  '  full  warning,'  as  he  admits, 
chose  to  be  careless  of  his  own  interests?  Or  would  it  not 
be  more  just  that  he  himself  should  pay  the  Mendota  Graves 
to  whom  he  confessedly  was  indebted,  and  whose  debt  confes- 
sedly was  not  discharged  by  this  remittance  to  the  wrong  per- 


cir.  XXI.]  Banking.  290 

son,  and  who  swears  that  '  he  never  had  possession  of  the 
draft,  and  never  anthorized  any  one  to  indorse  his  name  upon 
it,  and  never  anthorized  any  one  to  take  possession  of  it.' 
How,  too,  I  wonld  ask,  with  snch  a  statement  sworn  to  by  him 
on  the  trial,  can  he  maintain  an  action  of  trover,  resting  liis 
complaint  on  tlie  averment  that  he  had  been  '  in  possession  ' 
as  the  legal  owner  ? 

'*  The  judgment  should  be  reversed." 

The  Supreme  Court  of  the  State  of  California  in  the  case 
of  People  V.  Bendit,  111  Cal.  274,  defines  the  crime  of 
forgery  and  says: 

''  When  the  crime  is  charged  to  be  the  false  making  of  a 
writing,  there  must  be  the  making  of  a  writing  which  falsely 
purports  to  be  the  w^riting  of  another.  The  falsity  must  be  in 
the  writing  itself  —  in  the  manuscript.  A  false  statement  of 
fact  in  the  body  of  the  instrument,  or  a  false  assertion  of  au- 
thority to  write  another's  name  or  to  sign  his  name  as  agent, 
by  which  a  person  is  deceived  and  defrauded,  is  not  forgery. 

"'  There  must  be  a  design  to  pass  as  the  genuine  writing 
of  another  person  that  which  is  not  the  writing  of  such  other 
])erson.  Tbe  instrument  must  fraudulently  purport  to  be  what 
it  is  not."  ^'^ 

§  212.  Right  of  bank  against  presenter  and  owner  of  forged 
paper. 

"  If  the  presenter  owned  the  paper  at  the  time  of  its  pay- 
ment, the  money  must  be  refunded  on  discovery  of  the  forg- 
ery provided  his  condition  has  not  in  the  meantime  changed 
so  as  to  render  a  payment  unjust."  ^^ 

In  the  case  of  the  Star  Fire  Ins.  Co.  v.  Xew  Hampshire 
Xat.  Bank,  GO  X.  H.  442,  the  court  says  that  "'  the  drawee, 
who,  without  notice  of  any  forgery,  has  paid  a  draft  to  the 
liolder  to  whom  it  was  negotiated,  by  the  forged  indorsement 
of  the  payee's  name,  may  recover  of  the  holder  the  money 
paid  upon  the  draft." 

In  the  case  of  Birmingham  Nat.  Bank  v.  Bradley,  103  Ala. 
109,  in  an  action  to  recover  money  paid  on  a  forged  check, 
in  the  syllabus  of  said  case,  the  reporter  says: 

f'2  People  i.  Cole,  130  Cal.  13.  c.-?  Cyclopedia   of  Law   and   Proce- 

dure, Vol.  ,T,  p.  540. 


300  Checks.  [ch.  xxi. 

'^  The  i^ayee  of  a  check  who  indorses  it,  and  receives  tlie 
money  thereon,  guarantees  the  genuineness  of  said  check  to 
the  indorsee,  and  as  to  the  payee  indorser  the  indorsee  is  un- 
der no  obligation  to  discover  its  forgery;  and  if  the  check  is 
forged,  the  indorsee  may  recover  from  such  indorser  the 
money  paid  him  in  an  action  of  assumpsit.     *     -     *. 

"  Where  a  forged  check  has  been  forwarded  by  an  in- 
dorsee bank  to  the  drawee  bank  for  collection  and  the  latter 
bank  credits  the  forwarding  bank  with  the  amount  of  such 
check,  without  actually  remitting  the  money,  on  discovering 
the  forgery,  the  draw^ee  bank  can  charge  said  amount  back 
to  the  forwarding  bank." 

The  rule  formerly  prevailing  that  the  banker  must  know 
the  drawer's  signature,  and  if  it  pays  a  forged  check,  must 
bear  the  loss  as  between  it  and  the  holder,  is  modified  by  the 
courts,  and  the  rule  which  is  now"  accepted  is  very  clearly 
stated  in  the  case  of  Danvers  Bank  v,  Salem  Bank,  151  Mass. 
280. 

The  court,  in  defining  the  rule  in  this  case  says: 

"  In  the  case  at  bar,  the  plaintiff  seeks  to  recover  from  the 
defendant  the  amount  of  a  forged  check  in  the  name  of  one 
of  the  plaintiif's  customers,  for  which  it  had  given  the  de- 
fendant credit  as  money. 

"  In  the  usual  course  of  business,  if  a  check  purporting  to  be 
signed  by  one  of  its  depositors  is  paid  by  a  bank  to  one  who, 
finding  it  in  circulation  or  receiving  it  from  the  payee  by  in- 
dorsement, took  it  in  good  faith  for  value,  the  money  cannot 
be  recovered  back  on  the  discovery  that  the  check  is  a  forgery. 
It  is  presumed  that  the  bank  knows  the  signatures  of  its  own 
customers,  and  therefore  is  not  entitled  to  the  benefit  of  the 
rule  which  in  cases  of  forgery  permits  a  party  to  recover  back 
money  paid  under  a  mistake  of  fact  as  to  the  character  of  the 
instrument  by  wdiich  the  fraud  has.  been  effected.  Tliis  pre- 
sumption is  conclusive  only  when  the  party  receiving  the 
money  has  in  no  way  contributed  to  the  success  of  the  fraud, 
or  the  mistake  of  fact  under  Avhich  the  payment  has  been  made 
In  the  absence  of  actual  fault  on  the  part  of  the  drawee,  his 
constructive  fault  in  not  knoAving  the  signature  of  the  drawer 
and  detecting  the  forgery  will  not  preclude  his  recovery  front 
one  wdio  took  the  check  under  circumstances  of  suspicion,  with- 


CH.  XXI 


]  Banking.  301 


out  proper  precaution  or  whose  conduct  has  been  such  as  to 
mislead  the  drawee  or  induce  him  to  pay  the  check  without  the 
usual  security  against  fraud.  National  Bank  of  Xorth  Am- 
erica V.  Bangs,  106  Mass.  441,  445.  AVhere  a  loss  which  must 
be  borne  by  one  of  two  parties  alike  innocent  of  the  forgery 
can  be  traced  to  the  neglect  or  fault  of  either,  it  is  reasonable 
that  it  should  be  borne  by  him,  even  if  innocent  of  any  in- 
tentional fraud,  through  whose  means  it  has  succeeded. 
Gloucester  Bank  v.  Salem  Bank,  17  Mass.  33.  To  entitle  the 
holder  to  retain  money  obtained  by  a  forgery,  he  should  be 
able  to  maintain  that  the  whole  responsibility  of  determining 
the  validity  of  the  signature  was  placed  upon  the  drawee,  and 
that  the  vigilance  of  the  drawee  was  not  lessened  and  that  he 
was  not  lulled  into  a  false  security  by  any  disregard  of  duty 
on  his  own  part,  or  by  the  failure  of  any  precautions  which 
from  his  implied  assertion  in  presenting  the  check  as  a  suf- 
ficient voucher  the  drawee  had  a  right  to  believe  he  had 
taken.  Ellis  v.  Ohio  Ins.  &  Trust  Co.,  4  Ohio  St.  628;  Kou- 
vant  V.  San  Antonio  iS^'at.  Bank,  63  Tex.  610;  First  Nat. 
Bank  of  Quincy  v.  Bicker,  71  111.  439." 

?  213,  Alteration  after  signing  and  uttering. 

AVhere  the  drawer  of  the  check,  in  the  writing  of  the  same, 
so  carelessly  writes  the  amount  intended  to  be  withdrawn, 
leaving  a  blank  space  preceding  the  writing  which  may  be  used 
to  raise  the  sum  from  that  written,  and  utters  and  circulates 
the  same  in  this  form,  and  it  is,  after  passing  from  the  maker's 
hands,  altered  and  presented  to  the  bank  for  payment,  the  bank 
cannot  be  held  responsible  unless  it  was  possible  to  discover 
the  alteration,^"* 

The  rule^  as  laid  down  in  the  case  of  National  Bank  v.  Nolt- 
ing,  26  S.  E.  Rep.  826,  is  stated  as  follows:  "The  depositor 
is  only  charged  with  ordinary  care." 

The  court,  in  determining  the  character  of  negligence  that 
would  impose  the  loss  upon  the  maker,  illustrates  it  by  the 
case  of  Young  v.  Grote,  4  Bing.  253.  The  facts  are  stated  as 
follows:  ''Where  the  depositor,  going  away  from  home,  left 
with  his  wife  several  checks  which  he  had  signed  in  blank,  and 
Avhich  she  was  to  fill  up  according  to  her  needs,  she  filled  up 

64]Mahaiwe  Bank  v.  Douglas,  31  Conn.  170;  Belknap  r.  Bank  of  North 
America,  100  Mass.  .370. 


302  Checks.  [ch.  xxi. 

one  for  '  fifty-two  pounds,  two  shillings/  but  she  began  with 
the  word  *  fifty  '  with  a  small  letter,  and  in  the  middle  of  a 
blank  line.  In  writing  the  marginal  figures,  likewise,  she  left 
a  considerable  space  between  the  '  pound  mark '  and  the  fig- 
ures '  52,'  she  gave  the  check  in  this  form  to  her  husband's 
clerk,  to  get  the  money  upon  it."  The  court,  in  commenting 
upon  the  drawing  of  the  check  says,  "  Here  the  check  had 
been  so  carelessly  written  that  the  forgery  was  made  the 
simplest  matter  in  the  world,  and  the  court  held  that  the  loss 
must  rest  w4th  the  drawer." 

The  rule  as  between  the  bank  and  the  depositor  or  maker  of 
the  check  may  be  stated  as  follows: 

If  the  check  is  so  carelessly  drawn  by  the  maker  as  to  admit 
of  alterations,  which  cannot  be  detected  by  the  bank's  paying- 
teller,  whose  duty  it  is  to  scrutinize  all  checks,  the  drawer  of 
the  check  must  suffer  the  loss.  On  the  other  hand  if  the 
check  is  carefully  drawn,  and  the  usual  requirements  of  the 
law  are  complied  with,  as  to  the  essentials  of  form,  etc.,  and 
the  bank  pays  such  a  check  which  shows  erasures,  interlinea- 
tions or  alterations,  w^hich  evidently  changes  the  original  in 
any  material  matter,  and  which  could  be  observed  by  a  careful 
examination  of  the  instrument,  and  a  loss  occurs  to  the  maker 
l)y  such  alteration  and  through  payment  thereof  by  the  bank^ 
it  must  stand  the  loss. 

The  alteration  of  the  written  or  printed  portion  of  tlie 
check  is  material,  while  the  change  of  the  figures  designating 
llie  sum  of  the  check  to  be  withdrawn  may  not  be.  The  amount 
of  the  check  or  sum  to  be  withdrawn,  when  written  in  a  legi- 
ble hand,  if  altered  and  changed,  should  be  refused  payment 
until  explained.  The  written  amount  controls  the  action  and 
decision  of  the  paying  teller  and  not  the  amount  denoted  by 
the  figures. 

The  case  of  the  City  Xat.  Bank  of  Fort  Worth  v.  Stout, 
61  Tex.  567,  is  a  clear  illustration  of  the  rule  that  the  writing 
of  the  amount  controls  and  determines  the  action  of  the  bank 
paying  the  check.  The  facts  in  this  case  are  stated  as  fol- 
lows: 

"  That  on  the  21st  day  of  September,  1881,  plaintiff  went 
into  defendant's  banking  house  and  requested  defendant  to 
sell  him  certain  exchange  on  the  city  of  Xew  York  to  the 


CH.  XXI.]  Baxkixg.  303 

amount  of  $500,  and  to  make  its  draft  or  bill  of  excliange  on 
some  bank  in  ISTew  York  for  the  $500,  payable  to  one  Frank 
Crandall,  who  was  plaintiff's  son-in-law;  that  the  bank  then, 
throngh  its  cashier,  S.  W.  Lomax,  drew  its  draft  as  follows: 

"  THE  CITY  NATIONAL  BANK  OF  FORT  WORTH, 

"(Original.)  Fort  Worth,  Texas,  Sept.  21,  1881. 

"  Pay  to  the  order  of  Frank  Crandall  five  thousand  dollars. 

"  S.  W.  Lomax,  Cashier. 

"  To  Donnell,  Lawson  &  Simpson,  New  York. 
"  No.  875." 


and  delivered  the  same  to  plaintiff;  that  the  figures  on  the 
margin  of  the  draft  were  correct  ($500)  at  the  time  the  draft 
was  made,  but  had  afterward  been  changed  by  the  addition 
thereto  of  another  figure  0,  by  someone  unknown  to  defend- 
ant, and  that  the  bankers,  Donnell,  Lawson  &  Simpson,  upon 
whom  said  draft  was  drawn,  had  in  good  faith  cashed  the  same, 
believing  it  to  be  a  bona  fide  draft  for  the  sum  of  $5,000;  that 
defendant  did  not  discover  the  mistake  until  October  22,  1881, 
long  after  the  draft  had  been  paid  to  plaintiff  and  his  assig- 
nees for  the  full  amount  of  $5,000,  and  upon  settlement  with 
said  Donnell,  Lawson  &  Simpson. 

Tliat  defendant  immediately  upon  discovering  the  error,  and 
upon  ascertaining  that  Donnell,  Lawson  &  Simpson  had  cashed 
the  draft  for  the  sum  of  $5,000,  demanded  of  plaintiff"  an  ex- 
planation thereof,  and  that  plaintiff  repay  to  defendant  the  sum 
of  $4,500,  whieli  it  alleged  defendant  by  mistake  paid  and 
caused  to  be  paid  to  him  and  to  Crandall,  but  that  neither 
plaintilf  nor  Crandall  would  explain  to  defendant  their  fraudu- 
lent action,  and  they  both  refused  to  repay  to  defendant  the 
sum  of  $4,500  or  any  part  thereof;  but  insisted  upon  their 
right  to  take  advantage  of  the  mistake." 

It  will  be  observed  that  the  draft  was  drawn  showing  the 
amount  of  the  same  as  w^ritten  in  the  body  of  the  check  to  be 
"five  thousand  dollars."  The  writing  was  not  changed,  but 
the  figures  which  were  inserted,  and  correctly  for  $500,  were 
raised  by  the  addition  thereto  of  another  figure  0. 

T' 0  bank  set  up  as  a  defense  to  the  suit  "that  plaintiff 
purchased  the  $5,000  draft;  that  plaintiff  and  his  payees  re- 
ceive 1  the  benefit  of  the  same,  and  that  plaintiff  thereby  be- 
came liable  and  promised  to  pay  in  the  sum  of  $4,500  balance." 


)04r  .  Checks.  [cii. 


XXE. 


In  disposing  of  the  defense  and  the  case  the  court  says: 

"  The  mistake  in  the  amount  for  which  the  draft  was  drawn 
was  made  by  the  cashier  of  the  bank,  and  it  does  not  appear 
that  the  appellee  had  any  notice  whatever  of  the  mistake  when 
he  handed  back  the  draft  to  the  cashier  with  request  that  he 
would  inclose  it  in  an  envelope,  direct  it  to  Crandall,  and 
deposit  it  in  the  post  office  with  the  bank's  mail.  The  appellee 
received  no  benefit  from  the  mistake,  and  however  fraudulent 
may  have  been  the  conduct  of  Crandall  in  receiving  $5,000  on 
the  draft,  which  he  most  probably  knew  was  intended  to  ena- 
ble him  to  receive  500  only,  yet  the  mere  fact  that  he  was  the 
son-in-law  of  Stout,  to  whom  Stout  intended  to  make  a  present 
of  $500,  coidd  not  render  Stout  liable  to  the  appellant  for 
an  injury  which  resulted  from  its  own  want  of  due  care  and 
the  fraud  of  another." 

If  it  were  shown  that  Stout  knew  of  the  mistake  before  he 
caused  the  draft  to  be  mailed  to  Crandall,  a  different  question 
would  arise. 

It  is  not  shown  by  this  case  that  the  bank  paying  the  draft 
observed  the  raising  of  the  figures  from  $500  to  that  of  $5,000, 
though  this  fact  had  been  shown  it  would  not  evidently  have 
changed  the  court's  holding;  but  if  the  writing,  whiclf  is  the 
material  part  of  the  instrument,  is  changed,  the  drawee  bank 
paying  the  same,  when  such  change  or  alteration  is  discern- 
able,  must  stand  the  loss. 

§  214.  Right  of  possession  to  paid  checks. 

The  question  of  the  right  to  possession  of  paid  checks  may 
become  one  of  importance,  arising  when  paid  by  the  bank,  and 
when  its  possession  becomes  necessary  as  an  item  or  document 
to  be  used  in  evidence. 

In  matters  arising  between  the  bank  and  the  drawer,  the 
bank  is  entitled  to  possession  after  payment.  Proceeding  upon 
the  fact  that  a  check  is  an  order,  and  that  it  is  always  drawn 
upon  a  bank,  and  is  in  the  nature  of  a  request  or  direction  for 
the  payment  of  a  named  sum  of  money,  which  is  a  debt  owing 
1)V  the  bank  to  the  drawer,  the  bank,  upon  payment  of  the 
check,  is  entitled  to  retain  perpetual  possession  of  the  same. 

The  right  of  possession  by  the  bank  to  a  paid  check  is  based 
upon  the  principles   of  law  which  are  recognized  by  the  law 


<ii.  xxr.]  Banking.  305 

merchant,  which  consists  of  certain  principles  of  equity  and 
usages  of  trade  which  general  convenience  and  common  sense 
of  right  has  established. 

The  common-sense  view  is  that  the  bank,  being  a  debtor, 
when  it  pays  out  its  funds  upon  an  order,  which  may  be  in  the 
form  of  a  letter  or  telegram,  or  an  adopted  form  of  instrument 
prepared  by  the  bank,  and  called  a  check,  it  is  entitled  to  retain 
possession  of  the  instrument  as  its  evidence  that  a  specified 
sum  of  money  owing  by  it  to  the  drawer  was  paid. 

The  universal  rule  of  law  is  that  when  a  debtor  pays  a  debt, 
upon  an  order  addressed  to  him  directing  payment,  he  is  enti- 
tled to  retain  perpetual  possession  of  the  instrument  as  an 
evidence  of  payment. 

Mr.  Wigmore,  on  evidence,  says:  "The  payee  of  money 
naturally  leaves  behind  him  in  the  hands  of  the  payor  some 
document  by  way  of  receipt  or  evidence  of  payment."' 

§  215.   Present  rule. 

By  custom  the  rule  is  established  that  upon  demand  by  the 
drawer  made  upon  the  bank  it  must  deliver  over  to  him  all 
his  paid  checks.  This  rule  has  been  established  upon  the 
hypothesis  that  the  bank  is  the  agent  of  the  depositor,  holding 
his  funds  for  him  as  a  trustee.  Upon  this  theory  the  drawer 
may  become  entitled  to  possession  of  the  checks.  But  upon 
the  theory  now  so  well  established  by  the  courts  that  the  bank 
holding  commercial  deposits  is  a  debtor  to  the  depositor,  it 
cannot  be  compelled  to  surrender  its  best  evidence  (in  pos- 
session) of  the  fact  that  it  has  paid  its  debt. 

The  element  or  purpose  for  which  the  check  is  given,  as 
between  the  drawer  and  payee,  cannot  in  any  way  arise  as 
affecting  the  right  of  the  bank  to  the  possession  of  the  check. 

The  check  is  the  instrument  placed  in  the  hands  of  the 
ipsijee  to  be  used  by  him  for  the  purpose  of  withdrawing  from 
the  bank  the  money  intended  to  be  transferred  to  him,  or  the 
lawful  holder,  and  after  payment  his  right  of  possession  to 
the  check  passes  to  the  bank. 

^  216.  Equitable  and  safe  rule. 

AVhen  a  deposit  of  money  is  made  in  a  commercial  bank,  the 
the  relationship  existing  and  established  by  law  between  the 
parties  is  "one  of  debtor  and  creditor. 

65  Wigniore   on   Evidence,  Vol.    1,    §   156. 
20 


306  Checks.  [cii.  xxi. 

A  pass-book  in  the  possession  of  a  depositor  is  prima  facie 
evidence  of  the  debt  of  the  bank  to  the  owner  of  the  book. 
At  stated  periods  the  bank  notifies  the  depositor  to  bring  in  or 
deliver  to  the  bank  his  book  for  the  purpose  of  balancing  the 
same,  called  "  balancing  the  pass-book."  The  drawer's  checks 
which  have  been  paid  are  charged  to  his  account  and  a  balance 
is  struck.  The  transaction  then  becomes,  if  all  the  items  are 
settled  between  the  parties,  an  account  stated.  At  the  time  of 
balancing  the  pass-book,  and  settlement,  the  drawer  of  the 
checks  should  be  required  to  make  an  examination  of  all  checks 
charged  up  against  him,  and  if  any  are  forged  or  altered  the 
declaration  or  fact  should  at  the  time  and  in  the  presence  of 
the  bank's  agent  be  pointed  out  to  the  bank,  otherwise  the 
drawer  thereafter  should  be  estopped  from  alleging  a  forgery. 
After  such  examination  of  the  checks  they  should  be  sealed 
and  placed  on  file  in  the  vaults  of  the  bank  for  the  purpose  of 
evidence,  should  they  be  required,  in  matters  arising  between 
the  maker  and  the  payee. 

The  establishment  of  this  rule,  which  the  bank  may  enforce 
by  a  by-law,would  forever  settle  the  question  as  to  when  or 
within  what  period  of  time  a  forged  or  altered  check  could  be 
declared  a  forgery  and  sued  upon. 

The  present  rule  fixing  the  time  when  a  suit  may  be  brought 
is  that  if  the  drawer,  upon  discovery,  give  prompt  notice,  not 
being  himself  in  fault,  no  length  of  time  will  bar  the  action 
to  recover.®^ 

As  to  what  is  a  reasonable  time  in  which  notice  must  be 
given,  the  Supreme  Court,  in  the  case  of  Third  National  Bank 
of  St.  Louis  V.  Allen  et  al.,  says:  "  The  accepted  rule  is  that 
the  payor  must  be  allowed  a  reasonable  time  to  detect  the  for- 
gery and  demand  restitution;  what  will  be  a  reasonable  time 
will  greatly  depend  on  the  circumstances  of  each  particular 
case."®^ 

In  Koontz  v.  Central  ISTational  Bank  (51  Mo.  275)  the  court 
held  that  where  a  draft  was  paid  by  mistake  in  July  and  no 

CO  Canal  Bank  r.  Bank  of  Albany,  67  Third  Nat.  Bank  v.  Allen  et  al.^ 

Now   Hampshire   Nat.   Bank,   60   N.       59  Mo.  310. 
1   Hill,   287;    Star   Fire   Ins.   Co.  v. 
H.  442. 


CH.  XXI.]  Ba^^kixg.  307 

notice  was  given  bj  the  defendant  of  the  error  till  the  follow- 
ing December,  Held,  the  plaintiff  might  still  recover. 

The  rule  as  stated  and  the  cases  enunciating  and  sustaining 
it  as  the  law  leaves  (but  little  hope  and)  no  defense  for  a  bank 
that  permits  its  paid  receipts  or  checks  to  be  taken  out  of  its 
possession,  for  at  any  time  after  discovery  the  drawer,  not 
being  in  fault,  may  sue  the  bank  for  the  amount  paid  out  on 
the  forged  instrument,  which  forgery  may  have  been  perpe- 
trated after  it  left  the  possession  of  the  bank.  Hence,  the  just 
and  equitable  rule  allowing  the  bank  to  retain  possession  of 
the  check. 


CHAPTER  XXII. 


OVERDRAFTS. 

§  217.  When  unlawful. 

A  bank  paying  a  check  drawn  upon  it  by  a  person  when 
that  person  has  no  funds  deposited  with  the  bank  to  meet  the 
check,  or  where  the  check  is  for  a  greater  amount  of  funds 
than  the  drawer  has  in  the  bank  at  the  time  of  presentment, 
the  j^ayment  of  the  check  by  the  bank  creates  an  overdraft. 

The  practice  of  banks  allowing  its  customers  to  overdraw 
their  accounts  is  one  which  is  in  violation  of  all  legitimate 
banking. 

There  is  no  expressed  or  implied  power  granted  by  the 
law  authorizing  the  officers  of  a  bank  to  honor  and  pay  checks 
issued  by  its  customers  unless  there  are  sufficient  funds  de- 
posited in  the  bank  to  pay  such  checks  when  presented. 

An  overdraft  on  a  bank  which  is  created  through  the  acts 
of  any  of  its  officers,  and  who  knowingly  permits  the  same  to 
be  created  without  having  direct  authority  from  the  board  of 
directors,  is  guilty  of  a  breach  of  trust  and  liable  to  an  action 
to  make  good  the  amount. 

A  check  drawn  upon  a  bank  and  passed  by  a  person  knowing 
at  the  time  of  the  drawing  and  passing  of  the  check,  that  he 
had  no  means  in  the  bank  to  pay  the  same  and  having  made 
no  previous  arrangements  with  the  bank  to  pay  such  a  check, 
the  act  is  obtaining  credit  falsely,  and  is  a  fraud.  ^ 

§  218.  Usage  or  practice,  no  authority. 

The  Supreme  Court  of  the  United  States  in  the  case  of 
Minor  V.  The  Mechanics'  Bank  of  Alexandria,  1  Pet.  40,  in 
discussing  the  question  of  the  established  usage,  custom,  and 
practice  of  the  bank  in  permitting  overdrafts,  which  was 
claimed  to  be  a  justification  by  usage  and  practice,  the  court 
says:  "  We  may  now  proceed  to  the  consideration  of  the  three 
instructions  prayed  for,  in  behalf  of  the  defendants.     The  first 

1   Merchants'  Bank  r.  Rtato  Bank,  10  Wall.  004. 
[308] 


CH.  XXII.]  Banking.  309 

is,  in  substance,  that  if  it  Were  the  established  usage  and 
practice  of  the  bank,  that  the  cashier  might,  in  his  discretion, 
permit  customers  to  overdraw,  and  to  have  checks  and  notes 
charged  up,  without  present  funds  in  the  bank ;  and  for  the 
cashier  to  receive  and  pass,  as  cash,  checks  and  drafts  upon 
other  banks,  and  if  the  balances  appearing  against  such  per- 
sons charged  in  the  books  of  the  bank,  arose  out  of  the  exercise 
of  such  discretion  by  the  cashier,  in  the  course  of  the  ordinary 
transactions  of  the  bank,  and  pursuant  to  the  established  usage 
and  course  of  business  there  adopted  and  generally  known  to 
the  president  and  directors,  practiced  and  continued  with  their 
knowledge,  for  a  series  of  years,  from  the  commencement  of 
the  bank,  to  the  termination  of  Minor's  cashier-ship,  though 
the  existence  of  such  balances  or  the  particular  circumstance 
attending  them,  were  not  formally  communicated  to  the  board 
of  directors,  the  jury  may  infer  the  approbation,  assent,  and 
acquiescence  of  the  president  and  directors  as  to  such  usage 
and  course  of  business. 

The  refusal  of  this  instruction  is  matter  of  no  small  em- 
barrassment and  difficulty  to  this  court,  from  the  tenns  in  whick 
it  is  couched,  and  the  issues  on  the  sixth,  eighth,  and  ninth 
pleas,  to  which  alone  it  can  be  properly  applied.  Those  issues 
put  to  the  jury  the  question  whether  the  acts  of  the  cashier, 
whatever  might  be  their  character  or  kind,  were,  or  were  not, 
done  by  the  wrong,  connivance,  and  permission  of  the  president 
and  directors  of  the  bank.  The  point  of  the  instruction  is, 
that  the  established  usage  and  practice  of  the  bank  for  a  long 
period,  known  to  the  president  and  directors,  does  afford  a 
presumption  of  the  approbation,  assent,  and  acquiescence  of 
the  president  and  directors,  as  to  such  usage  and  practice ; 
though  the  balances  resulting  therefrom  were  not  formally 
communicated  to  the  directors.  From  the  shape  of  the  prayer 
it  is  undoubtedly  meant  that  such  usage  and  practice  Avas  kno-wm 
to  the  president  and  directors,  as  a  board,  and  in  their  official 
character,  and  received  their  approbation  as  such.  In  a  general 
^aew,  with  reference  to  the  principles  of  the  law  of  evidence, 
we  are  not  prepared  to  admit  that  such  a  presumption  could 
not  ordinarily  arise.  The  ordinary  practice  and  usage  of  a 
bank,  in  the  absence  of  counter  proof,  must  be  supposed  ta 
result  from  the  regulations  prescribed  by  the  board  of  directors. 


310  Overdrafts.  [ch. 


XXI  r. 


to  whom  the  charter  and  by-laws  submit  the  general  man- 
agement of  the  bank  and  the  control  and  direction  of  its  of- 
ficers. It  would  be  not  only  inconvenient,  but  perilous,  for 
the  customers,  or  any  other  jDcrsons  dealing  with  the  bank  to 
transact  their  business  with  the  officers  upon  any  other  pre- 
sumption. The  officers  of  the  bank  are  held  out  to  the  public 
as  having  authority  to  act,  according  to  the  general  usage, 
practice,  and  course  of  their  business ;  and  their  acts  within  the 
scope  of  such  usage,  practice,  and  course  of  business  would, 
in  general,  bind  the  bank  in  favor  of  third  persons  possessing 
no  other  knowledge.  In  the  case  of  the  Bank  of  the  United 
States  V.  Dandridge,  12  Wheat.  64,  the  subject  was  under  the 
consideration  of  this  court,  and  circumstances  far  less  cogent 
than  the  present  to  found  a  presumption  of  the  official  acts  of 
the  board  were  yet  deemed  sufficient  to  justify  their  being 
laid  before  the  jury,  to  raise  such  a  presumption.  If,  therefore, 
the  usage  and  practice  alluded  to  in  the  instruction,  were 
Avithin  the  legitimate  authority  of  the  board,  and  such  as  its 
written  vote  might  justify,  there  would  be  no  question,  in  this 
court,  that  it  ought  to  have  been  given. 

"The  pertinency  of  such  a  presumption  to  these  issues  cannot 
admit  of  dispute.  But  the  real  difficulty  remains  to  be  stated. 
Assuming  that  the  court,  upon  these  issues,  ought  to  have 
given  the  instruction  prayed  for,  the  question  is  whether  upon 
the  whole  record,  that  is  such  an  error  as  now  justifies  this 
court  in  a  reversal  of  the  judgment.  If  the  instruction  had  been 
given  and  thereupon  a  verdict  upon  these  issues  had  beeui 
found  for  the  defendants,  could  anv  judgment  have  been  given 
upon  these  issues  in  favor  of  the  defendants ;  or  ought  the 
judgment,  7ion  obstante  veredicto,  to  have  been  for  the  plaiii- 
tiflPs  ?  If  it  ought,  then  the  error  becomes  wholly  immaterial ; 
^ince,  in  no  event,  could  the  instruction  in  point  of  law, 
have  benefited  the  defendants.  Upon  deliberate  consideration, 
ii'e  are  of  opinion,  that  the  picas,  on  ivliicli  these  issues  are 
founded,  are  substantially  bad.  They  set  vp  a  defense  for  the 
cashier,  that  his  ojnission  " icell  and  truly  to  perform"  the 
duties  of  cashier,  was,  by  the  ivrong,  connivance  and  permis- 
sion of  the  hoard  of  directors.  The  question  then  comes  to  tins, 
whether  any  act  or  vote  of  the  board  of  directors,  in  violation 
of  their  own  duties,  and  in  fraud  of  the  rights  and  interest  of 


€H.  XXII,]  Bankixg.  311 

the  stockholders  of  the  hank,  could  amount  to  a  justification  of 
the  cashier,  who  was  a  particeps  crimitiis. 

We  are  of  opinion  that  it  could  not.  However  broad  and 
general  the  powers  of  the  direction  may  he,  for  the  government 
and  management  of  the  concerns  of  the  hank,  hy  the  general 
language  of  the  charter  and  hy-laws,  those  powers  are  not  un- 
limited,  hut  jnust  receive  a  rational  exposition.  It  cannot  he 
pretended  that  the  hoard  could,  hy  a  vote,  authorize  the  cashier 
to  plunder  the  funds  of  the  hank,  or  to  cheat  the  stockholders 
of  their  interest  therein.  jSTo  vote  could  authorize  the  directors 
to  divide  among  themselves  the  capital  stock,  or  justify  the 
officers  of  the  bank  in  an  avowed  embezzlement  of  its  funds. 
The  cases  put  are  strong,  but  they  demonstrate  the  principle 
only  in  a  more  forcible  manner.  Every  act  of  fraud  —  every 
known  departure  from  duty  by  the  board,  in  connivance  with 
the  cashier,  for  the  plain  purpose  of  sacrificing  the  interest  of 
the  stockholders,  though  less  reprehensible  in  morals,  or  less 
pernicious  in  its  effects  than  the  case  supposed,  would  still  be 
an  excess  of  power  from  its  illegality  —  and  as  such,  void,  as 
an  authority  to  protect  the  cashier  in  his  wrongful  compliance. 
N^ow,  the  very  form  of  these  pleas  sets  up  the  wrong  and  con- 
nivance of  the  board  as  a  justification,  and  such  wrong  and 
connivance  cannot,  for  a  moment,  be  admitted  as  an  excuse  for 
the  misapplication  of  the  funds  of  the  bank  by  the  cashier." 

The  court  very  clearly  defines  the  law  to  he  that  a  custom  or 
practice  which,  if  unlawful,  cannot  he  sanctioned,  legalized  or 
made  lawfid  hy  the  knowledge  or  orders  of  the  hoard  of 
directors. 

In  Peterson  v.  Union  National  Bank  52  Pa.  St.  20G,  the 
oourt  says:  "  The  drawing  a  check  upon  a  bank  in  which  the 
drawer  has  no  funds,  and  uttering- it,  is  a  fraud.  It  amounts 
to  a  false  affirmation  that  the  money  is  there  to  meet  it. 
Hence  it  is  a  deceit  practiced  upon  any  person  to  whom  the 
check  may  be  negotiated  and  equally  upon  the  bank  upon  which 
it  may  be  drawn." 

I?  219.  Overdrawing  may  be  legalized. 

Proceeding  upon  the  theory  that  an  overdraft  is  an  unse- 
cured loan,  it  may  be  legalized  by  an  agreement  made  in  ad- 


312  Overdrafts.  [cii.  xxii. 

vance  Avitli  the  bank,  whereby  tlie  drawer's  checks  up  to  a 
given  sum  are  to  be  paid,  though  he  has  no  money  on  deposit 
at  the  time  to  draw  against.  This  may  be  done  by  the  drawer 
indorsing  over  to  the  bank  collateral  security  to  secure  advances 
(future  advances)  which  it  may  make  from  time  to  time.  A 
transaction  of  this  nature  eliminates  it  from  all  taint  or  fraud 
and  establishes  the  overdraft  as  a  loan  which  may  be  author- 
ized and  directed  to  be  made  by  the  board  of  directors.  But 
where  an  officer  of  bank,  with  power  to  make  loans,  allows  per- 
sons to  overdraw  or  draw  against  the  credit  and  funds  of  the 
bank  without  any  previous  arrangement  as  to  security,  the 
transaction  cannot  be  legalized  by  the  board  of  directors  or  by 
custom  or  practice.  One  unlawful  act  does  not  make  another 
of  the  same  nature  legal  or  lawful  by  custom  or  practice.  All 
such  acts  are  frauds  upon  the  bank.  Xeither  can  the  board  of 
directors  make  such  acts  lawful  by  acquiescence  or  approval. 
By  attempting  to  legalize  an  unlawful  act  they  make  them- 
selves personally  liable. 

§  220.  Officer  allowing  overdraft,  criminal  act,  when. 

"  The  mere  fact  of  payment  by  the  officer  of  a  national  bank 
of  a  check  which  creates  an  overdraft  does  not  necessarily  con- 
stitute a  fraudulent  misapplication  of  the  funds  of  the  bank." 

"  If  an  overdraft  is  made  and  allowed  under  circumstances 
justifying  it  or  even  under  circumstances  making  it  a  fraud 
upon  the  bank,  the  entry  of  the  transaction  just  as  it  occurred 
on  the  books  of  the  bank  is  not  a  false  entry  under  Revised 
Statutes,  U.  S.,  §  5209."  ^ 

Where  an  officer  of  a  bank  pays  a  check  drawn  by  a  person 
who  has  no  funds  in  the  bank  or  other  security,  and  at  the 
time  of  pa^nnent  he  had  knowledge,  or  was  in  a  position  to 
acquire  knowledge  of  the  fraudulent  intent  of  the  maker  of  the 
cliock,  his  act  would  constitute  a  criminal  misapplication  of  the 
funds  of  the  bank.  "  The  drawing  of  a  check  unexplained  must 
be  deemed  a  fraud."  ^ 

§  221.  Drawer  liable  to  bank  for  overdrafts. 
A  bank  can  recover  from  the  drawer  the  amount  of  over- 
draft.    It  is  held  in  Franklin  Bank  v.  Bryam,  30  lie.  489, 

2  Dow   r.   United   States.   82   Fed.  •'!  Franklin   ;•.  Vanderpool,   1    Hall 

Ron    904  (N.  V.)  7H:  True  v.  Thomas,  16  Me. 

36. 


CH.  XXII.]  Banking.  313 

.that  if  the  cashier  of  a  bank,  though  he  pay  money  \vrongfnlly, 
if  it  ''  can  be  traced  into  the  hands  of  one  cognizant  of  his 
breach  of  trust  and  participates  in  his  wrongdoing,  it  is  diffi- 
cult to  perceive  why  redress  should  be  denied  the  bank." 

"  Where  a  depositor  gives  a  check  on  his  bank  and  his  ac- 
count is  thereby  overdra^\Ti,  a  promise  to  pay  the  bank,  if  it 
honors  the  same,  is  to  be  implied."  * 

4  Thomas    i'.    International    Bank,  46  111.  App.  461. 


CHAPTER  XXIII. 


CERTIFICATES  OF  DEPOSIT. 

§  222.  Defined  to  be  promissory  notes. 

A  certificate  of  deposit  is  defined  to  be  a  written  evidence  of 
debt ;  an  obligation  entered  into  by  the  bank  agreeing  to  re- 
pay a  certain  sum  of  money  to  the  payee  or  the  lawful  holder 
of  the  same,  on  demand  or  at  a  stipulated  time.  A  certificate 
of  deposit,  unless  containing  words  especially  denoting  that  it 
is  non-negotiable,  comes  within  the  class  of  negotiable  instru- 
ments. A  certificate  of  deposit  when  once  accepted,  the  time 
having  been  fixed  in  which  the  money  is  to  be  returned,  can- 
not be  presented  for  payment  until  the  date  of  its  maturity. 

This  custom  of  issuing  certificates  of  deposit  by  banks  rather 
than  pass-books,  came  into  use  as  a  special  accommodation  to 
the  bank's  customers,  as  the  issuing  of  such  a  certificate  is  a 
certification  on  the  part  of  the  bank  that  a  certain  indebtedness 
is  due  by  the  bank  upon  the  same. 

Certificates  of  deposit  frequently  bear  interest  in  a  sum 
agreed  upon  between  the  parties,  and  the  rate  of  interest  speci- 
fied therein  becomes  an  obligation  of  the  bank  to  the  holder 
of  the  certificate.  An  officer  agreeing  to  pay  a  rate  of  interest 
other  than  that  authorized  by  the  board  of  directors  to  be  paid 
upon  such  deposits,  makes  himself  personally  responsible,  as  it 
has  been  held  that  an  officer  has  no  authority  to  agree  to  pay 
interest  upon  deposits  unless  authorized  to  do  so  by  resolu- 
tion of  the  board  of  directors.  Certificates  of  deposit  when 
issued  by  the  bank,  specify  a  certain  sum  of  money  due  from 
the  bank  to  the  holder  or  owner  of  the  same,  and  when  pre- 
sented for  payment,  a  partial  pavment  should  never  be  entered 
or  credited  upon  the  certificate,  but  when  presented  it  should 
be  canceled,  the  certificate  preserved  and  filed  among  the  paid 
certificates,  and  a  new  certificate  issued  for  the  difference  due 
upon  the  same.  A  certificate  of  deposit  is,  in  a  legal  sense,  as 
between  the  bank  and  the  holder,  a  note ;  and  as  bet^TCen  the 
parties  set-offs  are  allowed ;  and  as  between  the  bank  and  an 

[314] 


en.  XXIII.]  Banking.  315 

iiiiioceiit  holder,  by  purchase  from  the  payee,  the  bank  cannot 
set-off  a  debt  that  may  be  owing  from  the  party  first  holding 
the  certificate,  it  being  a  negotiable  instmment,  is  governed 
by  the  law  affecting  such  instruments. 

A  certificate  of  deposit,  by  a  large  number  of  the  courts 
is  held  to  be  nothing  more  or  less  than  a  promissory  note.  The 
form  of  the  certificate  ordinarily  used,  supplies  and  fulfills  the 
definition  and  usual  form  of  a  promissory  note. 

The  usual  form  of  the  certificate  certifies  that  "A."  has  de- 
posited with  the  bank  a  certain  sum  of  money  payable  to  him- 
self or  order,  in  current  funds  upon  return  of  the  certificate 
properly  indorsed,  said  certificate  to  bear  interest  if  the  money 
is  left  on  dejoosit  for  a  certain  period  of  time.  The  certificate 
is  signed  by  an  officer  of  the  bank  and  dated. 

llie  signing  of  a  certificate  by  the  cashier  of  a  bank  in  his 
official  capacity,  is  a  sufficient  signing.  A  certificate  of  deposit 
as  between  the  bank  and  the  holder  of  the  certificate,  is  *not 
issued  or  received  as  a  promissory  note.  It  is  usually  a  trans- 
action entered  into  by  a  depositor  with  the  bank,  who  is  not 
a  "  general  depositor  or  customer,"  the  purpose  of  the  depositor 
in  so  depositing  his  money  being,  to  receive  interest  upon  a 
sum  of  money  Avhicli  he  would  not  otherwise  use  for  a  fixed 
period  of  time ;  not  desiring  to  open  a  commercial  account  ho 
deposits  his  money  for  safekeeping,  and  at  the  same  time  to 
receive  a  compensation  for  the  use  of  the  same. 

The  depositor  never  treats  the  transaction  as  a  loan  to  the 
bank.  He  does  not  understand  the  certificate  to  be  a  promis- 
sory note,  and  the  bank  issuing  the  instrument  does  not  regard 
it  as  such.  A  bank  usually,  in  borrowing  money,  does  so  by 
resolution,  duly  passed  by  the  board  of  directors,  authorizing 
the  same  to  be  made,  and  a  promissory  note  in  form  is  issued, 
although  it  is  held  a  cashier  may  borrow  where  it  is  the  custom 
of  the  bank,  without  such  a  resolution.  The  courts,  however, 
hold  a  certificate  of  deposit  to  be  in  form  and  in  effect  a  promis- 
sory note,  while  in  fact  the  transaction  between  the  bank  and 
the  depositor  is  a  deposit  of  a  specific  sum  of  money.  If  the  law 
is  settled  that  such  instruments  are  promissory  notes,  the  bank 
is,  in  effect,  a  debtor  to  the  depositor  for  money  borrowed,  and 
is  not  a  debtor  for  deposits  received. 

The  subject  is  one  of  importance,  particularly  to  a  bank 


316  Certificates  oe  Deposit.  [ch.  xxiii. 

which  issues  a  large  amount  of  certificates,  for  if  the  position 
of  the  bank  is  that  of  a  borrower  of  money  upon  all  of  its 
certificates  issued,  the  report  of  its  condition,  when  required 
to  be  returned  to  the  Comptroller  of  the  Currency  or  a  State, 
must  show  that  it  is  a  borrower  of  the  sum  total  of  all  its  cer- 
tificates of  deposits  at  that  time.  Deposits  and  certificates  are 
debts  due,  and  the  liability  of  the  bank  is  the  same  in  either 
case,  but  the  report  or  statement  of  a  bank  showing  a  large 
amount  of  money  borrowed,  is  in  effect  upon  the  public,  very 
different  from  one  showing  no  money  borrowed.  //  the  courts 
hold  that  a  certificate  of  deposit  is  a  promissory  note  in  effect, 
they  must  then  hold  that  it  is  money  borrowed  by  the  bank  and 
the  bank  can  set-off  such  a  class  of  liabilities  as  against  its 
taxable  property  when  assessed  by  the  State.  ^;, 

The  courts  holding  the  affirmative  that  certificates  of  de- 
posit are  nothing  more  than  promissory  notes,  are: 

Alabama,^  Califomia,^  Connecticut,^  Georgia,*  Illinois,'^  In- 
diana,^ lowa,"^  Kansas,^  Maine,^  Michigan,''^  New  York,'^ 
Ohio,^2  Vermont,^^  Wisconsin,'^  United  States.''* 

The  courts  holding  the  negative  of  this  question,  namely,, 
that  certificates  of  deposit  are  not  promissory  notes,  but  rather 
receipts  issued  for  the  deposit  are: 

Massachusetts,^®  Pennsylvania." 

In  the  case  of  Patterson  v.  Poindexter,  40  Am.  Dec.  554, 
rendered  in  1843  by  the  Supreme  Court  of  Pennsylvania,  the 

I  Talladega  Ins.  Co.  r.  Woodward,  12  Citizen's  Nat.  Bank  v.  Brown,. 
44  Ala.  287.                                                     4,5  Ohio  8t.  39,  —  N.  E.  799,  4  Am. 

2Poorman  r.  Mills,  .35  Cal.  118.  St.  Rep.  526;  Howe  r.  Hartness,  11 

3  Kilgore  r.  Bulklev.  14  Conn.  362.  Ohio  St.  449. 

4  Lynch  v  Goldsmith,  64  Ga.  42.  13  Bellows  Falls  Bank  v.  Rutland 
9  id.  38,  7  id.  84.  Co.  Bank.  40  Vt.  377. 

BLaughlin  r.  Marshall,  19  111.  390,  u  Klanber   r.   BigerstafT,  47   Wis. 

18  id.  563.  551,  3  N.  W.  357,  18  Wis.  481,  86 

6  51  Ind.  393,  21  id.  433,  83  Am.  Am.   Dec.   786,   17   Wis.   222,   15   id 

Dec.  358.  304. 

7Huse  r.  Ilamblin,  29  Iowa,  501,  15  Miller     r.     Avi.sten,     13     How, 

1  id.  531,  488.  4  Am.  Rep.  244.  (U.     S.)     218:     Saginaw     Bank     i\ 

8  Blood  !•.  Northrop.  1  Kan.  28.  Western  Pa.  Title,  etc.,  Co.,  105  Fed. 

9  Hatch     r.     Dexter     First     Nat.  Rep.  491. 

Bank,  94  Me.  348.  i«  Shute  V.  Pacific  Nat.  Bank,  136 

10  Tripp    r.    Curtenins.    36    Mich.       Mass.  487. 

494,  24  Am.  Rep.  610;  Cati  t\  Pat-  n  l^banon  r.  Mangan,  28  Pa.  St. 

terson,  25  Mich.   191.  452:    Louden   Savings  Fund  Society 

II  Munger  r.  Albany  City  Nat.  r.  The  Hagerstcv^-n  Savings  Bank^ 
Bank,  «5  N.  Y.  580,  60  id.  265,  48  36  Pa.  8t.  498. 

id.  478,  19  id.  152. 


CH.  xxiii.]  Ba>,'king.  317 

court  holds  that  a  certificate  of  deposit  in  the  words  and  figures 
following,  to-wit: 

''  I  hereby  certify  that  C.  S.  Tarpley  ha?  deposited  in  this 
bank  (Mississippi  Union  Bank),  payable  twelve  months  from 
May  1,  1839,  with  5  per  cent,  interest  till  due,  per  annum, 
$3,091.63,  for  the  use  of  K.  Patterson  &  Company,  payable 
to  their  order  upon  the  return  of  this  certificate. 

"  (Signed)  R.  ^Y.  CLIFTOX,  Cashier." 

is  not  a  promissory  note.  That  ''  nothing  is  a  promissory  note 
in  ivhich  the  promise  to  pay  is  merely  inferential." 

The  weight  of  authority  so  far,  and  at  the  present  time,  is 
that  a  certificate  of  deposit  issued  by  a  bank  agreeing  to  pay 
to  the  order  of  a  person  a  sum  of  money  on  demand  or  in  the 
future,  the  time  being  fixed,  is  in  effect  a  promissory  note. 
If  so,  it  is  subject  to  the  law  governing  negotiable  notes  and 
hills,  as  to  presentment  for  payment,  protest,  etc.;  and  if  a  prom- 
issory note,  and  the  money  represented  by  it  is  money  borrowed 
by  the  bank,  the  Statute  of  Limitations,  which  in  most  of  the 
States,  does  not  run  against  a  deposit  would  run  Against  a  cer- 
tificate of  deposit. 

Again  where  "  statements  "  and  ''  reports  "  are  required  to 
be  made  by  banks  to  the  Comptroller  of  the  Currency,  or  a 
State  Commission,  such  certificates  under  the  ruling  of  the 
courts  that  they  are  in  effect  promissory  notes,  should  be  re- 
ported as  they  are  legally  defined;  and  held  by  the  courts  to 
be,  namely, —  promissory  notes. 

A  promissory  note  represents,  in  all  cases,  an  indebtedness; 
such  an  indebtedness,  therefore,  as  pre"\dously  stated,  can  be 
set-off  by  the  bank  against  its  taxable  property  when  assessed 
by  the  State. 

The  bank  cannot  deny  the  position  in  relation  to  such  cer- 
tificates of  deposit  placed  upon  it  by.  the  court.  If,  therefore, 
it  is  estopped  from  denying  that  a  certificate  is  a  promissory 
note  in  effect,  it  is  a  loan,  and  the  bank  becomes  a  borrower 
of  money;  and  as  a  result  the  money  so  borrowed  or  placed 
upon  deposit  must  be  treated  as  money  borrowed,  and  is  not 
subject  to  taxation  as  a  deposit.  The  rule  reversed:  if  it  is 
declared  to  be  money  on  deposit  represented  by  such  certifi- 
cates of  deposit  and  is  purely  a  deposit,  the  ruling  of  the 
-courts  that  the  certificate  is  a  promissory  note  is  wrong. 


318  Certificates  of  Deposit.  [ch.  xxm. 

§  223.  Statute  of  limitations. 

In  the  State  of  California  the  Code  of  Civil  Procedure  (^see 
section  348)  provides  that  there  is  no  limitation  where  money 
is  deposited  in  the  bank.  The  reading  of  the  Statute  is: 
*'  To  action  brought  to  recover  money  or  other  property  de- 
posited "vvith  any  bank,  banker,  trust  company  or  savings  and 
loan  society,  there  is  no  limitation." 

In  the  case  of  Wells,  Fargo  &  Co.,  Respondent,  v.  Joseph 
Enright,  et  al.,  Defendants,  Commercial  and  Savings  Bank, 
Appellant,  127  Cal.  669,  the  court  holds  that  where  an  agree- 
ment based  upon  a  sufficient  consideration  is  entered  into  be- 
tween the  parties  agreeing  to  waive  the  limitation  of  a  statute 
that  it  is  a  personal  agreement,  not  against  public  policy  and 
can  be  legally  executed. 

Tlie  court  says: 

"  The  general  rule  is  that  no  contract  or  agreement  can 
modify  a  law,  but  the  exception  is  that,  where  no  principle  of 
public  policy  is  violated,  parties  are  at  liberty  to  forego  the 
protection  of  the  laAv.  Statutory  provisions  designed  for  the 
benefit  of  individuals  may  be  waived,  but,  where  the  enact- 
ment is  to  secure  general  objects  of  policy  or  morals,  no  con- 
sent will  render  a  non-compliance  with  the  statute  effectual. 
The  statute  limiting  the  time  within  which  action  shall  be 
brought  is  for  the  benefit  and  repose  of  individnals,  and  not  to 
secure  general  objects  of  policy  or  morals.  Its  protection 
may,  therefore,  be  waived  in  legal  form,  by  those  who  are  en- 
titled to  it;  and  such  waiver,  when  acted  upon,  becomes  an 
estoppel  to  plead  the  statute."  ^® 

Mr.  Wood  on  Limitations,  section  76,  where  it  is  stated 
that  if  the  promise  to  pay  be  made  before  the  debt  is  barred 
and  in  consideration  of  forbearance  to  sue  and  the  creditor 
forbears: 

"  It  is  binding  upon  the  debtor  and  at  least  has  the  effect  to 
keep  tliS  debt  on  foot  until  the  statutory  period  dating  from 
such  promise  expires  either  by  way  of  estoppel  or  as  a  con- 
ditional promise  to  pay  the  debt  in  case  the  plaintiff  proves 
it."    > 

The  law  in  California  is  that  the   Statute  of   Limitations 

18  State  Trust  Co.  v.  Sheldon,  G8  Vt.  259. 


CH.  XXIII.]  Bankixg.  310 

does  not  run  against  p,  depositor  of  money  or  other  property 
deposited  with  any  bank,  but  under  the  mling  of  the  courts 
that  a  certificate  of  deposit  is  in  effect  a  promissory  note.  The 
statute  above  refered  to,  would  not  apply  because,  in  effect, 
it  is  not  a  deposit  of  money,  but  the  bank  is  placed  in  a  posi- 
tion as  a  borower  of  money,  and,  therefore,  the  owner  of  such 
certificate  would  lose  his  right  of  action  under  the  statute, 
and  the  Statute  of  Limitations  governing  promissory  notes 
would  apply. 

The  law  governing  this  question  is,  that  where  a  certificate 
of  deposit  in  legal  effect  is  a  promissory  note,  the  statute  of 
limitations  runs  from  the  date  of  maturity.  Where  a  certifi- 
cate of  deposit  does  not  fix  the  time  of  payment,  but  reads  that 
it  is  payable  on  presentation  or  demand,  the  Statute  of  Limi- 
tations does  not  begin  to  run  against  the  instrument  until  de- 
mand. For  the  instrument  does  not  become  due  till  demand 
is  made.^'' 

In  the  case  of  L.  S.  Mitchell  v.  J,  C.  Easton,  Lnpleaded, 
etc.,  37  Minn.  335,  the  court  holds  that,  where  a  certificate  of 
deposit  is  issued,  in  the  following  form: 

''  Mower  County  Bank,  Austin,  Minn.,  March  29,  1876. 

"  L.  S.  Mitchell,  Esq.,  has  deposited  in  this  bank  seven 
hundred  fifty  and  no-100  dollars,  payable  to  the  order  of 
himself,  in  current  bank  notes,  on  the  return  of  this  certifi- 
cate properly  indorsed,  with  interest  at  the  rate  of  ten  per 
cent,  per  annum. 

"  Smith,  Wilkins  &  Easton." 

it  is  due  immediately  and  no  actual  demand  is  necessary  in 
order  to  set  the  Statute  of  Limitations  running.  But  see  Civil 
Code  Cal.,  §§  3132-3135. 

Banks  are  accustomed  to  receive  their  own  certificates  of  de- 
posit as  payment.  They  pass  between  banks  as  equivalent  to 
cash,  though  they  are  not  issued  or  intended  to  circulate  as 
money,  but,  like  a  cashier's  check  or  draft,  they  pass  between 
persons  in  trade  and  take  the  place  of  money  in  commercial 
transactions. 

19  Birch  r.   Fisher,  51   Mich.  36;       N.  Y.  265;  Bellows  Falls  v.  Rutland 
Munger  v.  Albany  City  Nat.  Bank,       Co.  Bank,  40  Vt.  377. 
85   N.   Y.   580;    Pardee   v.   Fish,   60 


320  Certificates  of  Deposit.  [ch.  xxiii. 

§  224.  Interest. 

The  rate  of  interest  fixed  and  agreed  to  be  paid  on  certifi- 
cates of  deposit  continues  after  maturity.^ 

If  a  certificate  of  deposit  becomes  payable  only  on  pres- 
entation and  demand,  interest  will  begin  to  run  upon  said  cer- 
tificate after  demand,  at  the  rate  prescribed  by  the  statute  of 
the  State. 

Interest  on  a  general  deposit  \vill  only  begin  to  run  against 
the  bank  from  the  date  of  the  demand  and  refusal  or  failure 
to  pay. 

§  225.  Authority  of  banks  to  issue  certificates. 

Any  banking  association  may  issue  certificates  of  deposit 
unless  prohibited  by  statute  or  by  provision  of  their  charter 
and  by-laws. 

The  Legislature  of  the  State  of  California,  assuming  that 
a  savings  and  loan  corporation  had  no  authority  inherent  to 
issue  certificates  of  deposit,  deemed  it  advisable  to  enact  a 
pro'^'ision  of  law,  giving  such  corporation  the  right  to  issue 
special  certificates  of  deposit.  The  provision  of  the  statute 
enables  the  corporation  bank  to  conduct  a  branch  of  banking, 
construed  generally  as  commercial  banking.  The  statute 
reads: 

"  Savings  and  loan  corporations  may  issue  general  certifi- 
cates of  deposit,  which  are  transferable  as  in  other  cases,  by 
indorsement  and  delivery;  may  issue,  when  requested  by  the 
depositor,  special  certificates,  acknowledging  the  deposit  by  the 
person  therein  named  of  a  specified  sum  of  money,  and  ex- 
pressly providing  on  the  face  of  such  certificate  that  the  sum 
so  deposited  and  therein  named  may  be  transferable  only  on 
the  books  of  the  corporation.  Payment  thereafter  made  by 
the  corporation  to  the  depositor  named  in  such  certificate,  or 
to  his  assignee  named  upon  the  books  of  the  corporation,  or, 
in  case  of  death,  to  the  legal  representative  of  such  person,  of 
the  sum  for  wdiich  such  special  certificate  was  issued,  discharges 
the  corporation  from  all  further  liability  on  account  of  the 
money  so  paid." 

The  statute  gives  authority  to  a  particular  kind  of  bank, 

20  Cordell   r.   First  Nat.   Bank  of  Kansas  Citv,  G4  ilo.  600. 


CH.  XXIII.]  Eankiistg.  321 

namely, —  a  savings  bank,  a  privilege  or  power  wliicli  tlie 
Legislature  assumed  it  did  not  or  could  not  possess  without 
the  aid  of  a  statute.  The  necessity  of  such  a  statute  may  be 
apparent,  but  a  savings  bank  unless  restricted  by  its  charter 
or  a  statute  is  possessed  with  incidental  and  implied  power  au- 
thorizing it  to  issue  certificates  of  deposit  in  lieu  of  pass- 
books, or  any  other  lawful  contract  as  to  the  receiving  and  re- 
payment of  deposits  without  the  aid  of  a  statute.  National 
banking  associations  may  issue  certificates  of  deposit.  There 
is  no  special  statute  of  the  United  States  enacted,  authorizing 
such  associations  to  issue  certificates  of  deposit,  but  they  are 
endowed  with  such  incidental  and  implied  powers,  and  may 
issue  certificates  without  the  aid  of  a  statute. 

The  right  to  issue  certificates  of  deposit  is  regarded  as  an 
incidental  right  to  banking.  The  courts  have  never  ques- 
tioned or  denied  this  right,  and  all  banking  corporations  and 
associations  throughout  the  United  States  are  endowed  with 
incidental  power  to  issue  certificates  of  deposit. 

A  certificate  of  deposit,  when  issued,  is  evidence  of  so  high 
and  satisfactory  a  character  as  to  the  sum  therein  named 
and  deposited,  that  to  escape  its  effect  and  the  amount  claimed 
therein,  the  bank  must  overcome  it  by  clear  and  satisfactory 
evidence.  See  First  ISTat.  Bank  of  Lacon  v.  Myers,  83  111. 
507.  It  is  also  held  by  the  same  authority,  that,  where  the 
testimony,  aside  from  the  certificate,  is  balanced  as  to  the 
amount  deposited,  the  certificate  will  turn  the  scale. 

§  226.  Payment  of  certificate. 

The  bank  must  pay  the  certificate  when  due  on  presentation 
and  demand,  but  a  certificate  of  deposit  fijiing  a  future  time 
of  payment  cannot  be  presented  for  payment  before  the  due 
date,  and  the  issuing  of  such  a  certificate  is  not  in  violatio:^  of 
the  National  Banking  Act.  Revised  Statutes  (U.  S.),  section 
5183,  reads:  "  Xo  national  banking  association  shall  issue  post 
notes,  or  any  other  notes  to  circulate  as  money,  than  such  as 
are  authorized  by  the  provisions  of  this  title."  This  section 
only  applies  where  instruments  are  issued  and  intended  to 
circulate  as  money.  It  does  not  forbid  the  issuing  of  certifi- 
cates of  deposit.^^ 

21  William  P.  Hunt,  appellant,  141  Mass.  515. 
21 


122  Certificates  of  Deposit.  [cii. 


XXIII. 


It  must  be  paid  to  the  owner.  The  instrument  being  trans- 
ferable if  presented  for  payment  by  a  person  other  than  the 
person  named  in  the  certificate  as  payee,  the  bank  must,  before 
payment,  satisfy  itself  that  the  transfer  and  assignment  is 
genuine ;  that  the  signature  is  the  signature  of  the  payee  named 
in  the  certificate. 

The  bank  is  held  to  the  same  degree  of  care  in  payment  of 
a  certificate  as  it  is  in  payment  of  checks.  If  it  pays  a  forged 
check  the  money  is  not  transferred.  If  the  assignment  on  the 
certificate  is  a  forgery,  the  true  owner  of  the  certificate  can 
recover. 

"Where  a  bank  issued  a  certificate  of  deposit  in  the  following 
language  — 

"  Samuel  Stein  has  deposited  in  this  bank  one  thousand  dol- 
lars, payable  to  the  order  of  himself  or  Ellen  Stein  on  the 
return  of  this  certificate." 

"J.  II.  BAXDEX, 

''  Per  Smith,  Cashier.''^ 

The  court  held: 

"  First.  That  the  certificate  of  deposit  did  not  authorize  the 
payment  of  the  money  to  Ellen  Stein  after  the  death  of  Samuel 
Stein. 

"  Second.  That  notice  to  the  paying  teller  of  the  bank  of  the 
death  of  S.  S.,  received  prior  to  the  payment  by  him  to  E.  S. 
of  the  amount  of  the  deposit,  was  notice  to  the  bank. 

"  Third.  That  if  he,  in  making  the  payment  after  such  no- 
tice, mistook  the  law,  the  bank  whose  agent  he  was  must  suffer 
the  consequences."^^ 

The  death  of  either  party  and  notice  to  the  bank  stops  pay- 
ment. But  the  bank  could  lawfully  pay  to  either  party  during 
the  lifetime  of  both  and  it  would  discharge  the  debt. 

22  Second  National  Bank  of  Baltimore  v.  Thomson  S.  Wrightson,  execu- 
tor of  Samuel  Stein,  63  Md.  81. 


CHAPTER  XXIV. 


BANK  LOANS. 
§  227.  Nature  of  loans. 

The  principal  assets  of  a  bank  are  its  loans,  personal  and  real 
estate.  'Personal  loans  are  those  where  the  maker  of  the  note 
guarantees  the  payment  by  the  act  of  executing  the  same.  lie 
thereby  becomes  the  maker  of  the  note,  agreeing  to  pay  the 
same  at  the  place  and  time  specified.  Such  an  obligation  is  a 
personal  agreement  and  does  not  carry  with  it  any  security 
of  whatsoever  nature  or  kind  other  than  a  personal  obligation. 
But  the  bank  may  at  the  time  of  taking  the  note  and  before 
the  transaction  is  closed  require  that  the  same  shall  be  secured, 
and  this  may  be  done  by  the  maker  delivering  to  the  bank 
personal  property,  and  when  delivered  and  once  in  possession 
of  the  bank,  it  can  be  held  as  a  pledge  until  the  debt  is  paid. 
The  bank's  claim  to  the  security  or  property  either  becomes  a 
general  or  special  lien.  If  the  property  is  pledged  to  secure 
a  particular  debt,  the  law  generally  provides  that  the  pledge 
shall  be  sold.  If  the  security  delivered  to  the  bank  is  an 
assigned  certificate  of  shares  of  stock  in  a  corporation,  in  order 
that  the  bank  may  hold  the  same  free  from  any  claims  of 
creditors  of  the  maker,  the  stock  should  be  by  the  bank  pre- 
sented to  the  secretary  of  the  corporation  for  transfer  to  the 
bank,  either  as  trustee  or  pledgee.  Until  this  is  done,  the  stock 
is  subject  to  attachment  by  creditors. 

Eeal  estate  loans  are  those  secured  by  mortgage.  A  deed 
made  and  delivered  to  the  bank  to  secure  a  debt  is  in  equity 
a  mortgage  and  the  title  to  the  property  remains  in  fact  in  the 
grantor,  and  to  divest  him  of  the  title  the  deed  must  be  fore- 
closed. As  deeds  in  such  cases  are  always  declared  to  be  mort- 
gages, it  is  advisable  in  the  first  instance  to  take  a  mortgage. 

All  commercial  State  banks,  and  national  banks,  are  duly 
authorized  to  make  personal  loans.  Savings  banks,  by  pro- 
vision of  law,  may  be  restricted  by  the  statute  of  the  State 
wherein  they  may  be  organized  in  taking  personal  security 

[323] 


o2-i  Baxk  Loans.  [cii.  xxiv. 

loans.  Where  the  statute  provides  that  savings  banks  may 
invest  their  money,  or  any  portion  thereof,  in  personal  security 
loans,  their  business  becomes  more  in  the  nature  of  commercial 
transactions.  They  are  usually  restricted  by  statute  and  are 
limited  to  making  loans  upon  real  estate  security,  or  in  the 
purchase  of  such  bonds  of  municipal  and  other  corporations  as 
the  law  of  the  State  may  provide. 

§  228.  Liabilities  of  any  person,  etc.,  to  national  banks'. 

Section  5200,  Revised  Statutes  (U.  S.),  provides  that: 

"  The  total  liabilities  to  any  association,  of  any  person,  or 
of  any  company,  corporation,  or  firm,  for  money  borrowed, 
including  in  the  liabilities  of  a  company  or  firm  the  liabilities 
of  the  several  members  thereof,  shall  at  no  time  exceed  one- 
tenth  part  of  the  amount  of  the  capital  stock  of  such  associa- 
tion actually  paid  in.  But  the  discount  of  bills  of  exchange 
drawn  in  good  faith  against  actually  existing  values,  and  the 
discount  of  commercial  or  business  paper  actually  owned  by  the 
person  negotiating  the  same,  shall  not  be  regarded  as  money 
borrowed." 

The  purpose  of  this  section  is  to  prohibit  any  bank  from 
loaning  its  funds  in  large  amounts  to  any  one  person.  But  the 
rule  does  not  apply  "  in  the  case  of  all  discounts,  and  an  excep- 
tion is  made  in  favor  of  '  bills  of  exchange  '  drawn  agaiust 
actually  existing  values."  The  exception  also  applies  to  "  com- 
mercial or  business  paper  owned  by  the  person  negotiating  the 
same." 

In  the  case  of  Second  National  Bank  v.  Burt,  93  E".  Y.  244, 
the  court  says: 

"  The  object  of  this  provision  of  the  Currency  Act  w^as  to 
guide  national  banks  from  the  hazard  of  loaning  money  in 
improvident  amounts  upon  speculative  and  accommodation 
paper,  but  it  contemplated  and  permitted  to  an  unlimited 
amount,  the  discount  of  paper  used  and  required  in  facilitating 
the  transfer  of  property  and  money  in  the  transaction  of  the 
legitimate  business  of  the  country." 

Where  a  person  is  already  an  indorser  on  paper  discounted 
by  the  bank  to  the  full  amount  of  one-tenth  of  its  capital 
stock,  it  is  not  a  violation  of  the  banking  laws  to  dis- 
count additional  paper  actually  owned  by  him.     Another  ques- 


CH.  XXIV.]  Baxkixg.  325 

tion  of  importance  arising  under  this  section  of  the  statute,  is, 
does  the  bank  violate  the  provisions  of  the  statute  in  makinp:;  a 
loan  in  excess  of  one-tenth  of  the  capital  stock  where  such  loan 
is  secured  by  collaterals? 

It  is  clear  that  the  adding  of  or  securing  of  a  loan  by  col- 
lateral security  does  not  enlarge  the  power  of  the  bank. 

The  only  penalty,  however,  which  may  be  enforced  against 
the  bank  for  violation  of  this  section  of  the  statute,  is  the 
liability  which  the  bank  may  incur  of  a  forfeiture  of  its  fran- 
chise, and  this  action  can  only  be  brought  by  the  government. 

The  loan,  though  in  excess  of  the  amount  prescribed  by  the 
statute,  can  be  recovered  in  full  from  a  borrower.-^ 

Section  5201,  Revised  Statutes  of  the  United  States,  pro- 
vides that  "  no  association  shall  make  any  loan  or  discount  on 
the  security  of  the  shares  of  its  own  capital  stock  nor  be  the 
purchaser  or  holder  of  any  such  shares,  unless  such  security  or 
purchase  shall  be  necessary  to  prevent  loss  upon  a  debt  pre- 
viously contracted  in  good  faith." 

This  section  iDrohibits  a  national  bank  from  acquiring  a  lien 
on  its  own  stock  against  its  stockholders,  and  a  provision  in  the 
by-laws  or  in  the  certificate  of  stock,  prohibiting  a  transfer  until 
the  liability  of  the  stockholder  to  the  bank  is  paid,  is  declared 
wholly  void.^ 

It  is  held  in  Bank  v.  Lanier,  11  "Wall.  369,  that  where  a  bank 
takes  a  pledge  of  its  own  stock  which  has  been  made  to  secure 
a  deposit  with  another  bank,  the  transaction  is  a  lending  of 
money  upon  the  security  of  its  stock  within  the  meaning  of 
the  law. 

Section  5137,  Revised  Statutes  of  the  United  States,  provides 
that: 

"A  national  banking  association  may  purchase,  hold,  and 
convey  real  estate  for  the  following  purposes  and  no  others : 

"First.  Such  as  shall  be  necessary  for  its  immediate  accom- 
modation in  the  transaction  of  its  business. 

1  Gold  Mining  Co.  17.  Rocky  Moun-  Maryland,    2    Abb.     (U.    S.)     424; 

tain  Nat.  Bank,  96  U.  S.  640;  Cor-  Smith  r.  First  Nat.  Bank,  45  Nebr. 

coran  f.  Batchelder,  147  Mass.  .541 ;  444. 

Wyman    r.    Citizens'    Nat.    Bank   oi  2  Conklin     r.     The     Second    Nat. 

Faribault.  29  Fed.  Rep.  7-34;   Stew-  Bank,  45  N.  Y.  655. 
art   V.    The    Nat.    Union    Bank    of 


o26  Bank  Loans.  [ch.  xxiv. 

"  Second.  Such  as  shall  be  mortgaged  to  it  in  good  faith  by 
way  of  security  for  debts  previously  contracted. 

"  Third.  Such  as  shall  be  conveyed  to  it  in  satisfaction  of 
debts  previously  contracted  in  the  course  of  its  dealings. 

"  Fourtli.  Such  as  it  shall  purchase  at  sales  under  judgments, 
decrees,  or  mortgages  held  by  the  association  or  shall  purchase 
to  secure  debts  due  to  it,  but  no  such  association  shall  hold 
the  possession  of  any  real  estate  under  mortgage  or  the  title 
and  possession  of  any  real  estate  purchased  to  secure  any  debts 
due  to  it,  for  a  longer  period  than  five  years." 

This  section  of  the  statute  expressly  prohibits  a  bank  from 
making  loans  and  concurrently  with  the  making  of  such  loans, 
the  taking  of  real  estate  as  security. 

Real  estate  security  can  only  be  taken  by  national  banks 
to  secure  a  debt  which  has  been  in  good  faith  previously  con- 
tracted. 

The  law  expressly  prohibits  the  bank  from  taking  real  es- 
tate or  any  mortgage  or  lien  thereon,  as  security  for  con- 
temporaneous loans.  The  bank  has  no  right  to  take  a  mort- 
gage to  secure  a  note  which  has  been  discounted  at  the  same 
time. 

In  the  case  of  Xational  Bank  y.  Matthews,  98  U.  S.  621, 
it  is  held  that  where 

"'A.'  executed  a  promissory  note  to  'B.,'  and  to  securp  the 
payment  thereof  a  deed  of  trust  of  land,  which  was  in  effect  a 
mortgage  with  the  power  of  sale  thereto  annexed.  A  national 
hank  on  the  security  of  the  note  and  deed  loaned  money  to 
■'  B.'  who  thereupon  assigned  them  to  the  bank.  The  note 
not  having  been  made  at  maturity,  the  trustee  was  pursuant 
to  the  power  proceeding  to  sell  the  lands  when  '  A.'  filed  his 
bill  to  enjoin  the  sale  upon  the  ground  that,  by  sections  5136 
and  5137  of  the  Revised  Statutes,  the  deed  did  not  inure  as 
a  security  for  a  loan  made  by  the  bank  at  the  time  of  the  as- 
signment of  the  note  andT  deed.  Held,  that  the  bank  is  en- 
titled to  enforce  the  collection  of  the  note  by  a  sale  of  the  land." 

Mr.  Justice  Miller  dissented  from  this  opinion  of  the  court. 
He  says: 

"  I  am  of  the  opinion  that  the  IsTational  Banking  Act  makes 
void  every  mortgage  or  other  conveyance  of  land  as  a  security 
for  money  loaned  by  the  bank  at  the  time  of  the  transaction 


CH.  XXIV.]  Baxeing.  327 

to  whomsoever  the  conveyance  may  be  made ;  that  the  bank  is 
forbidden  to  accept  snch  security,  and  it  is  void  in  its  hands. 

"  The  contract  to  pay  the  money  and  the  collateral  convey- 
ance for  security  are  separable  contracts,  and  so  far  independ- 
ent that  one  may  stand  and  the  other  fall. 

"  In  the  present  case,  the  money  was  loaned  on  the  faith 
of  the  deed  of  trust,  and  that  instrument  is  void  in  the  hands 
of  the  bank,  but  the  note,  as  evidence  of  the  loan  of  money,  is 
valid  against  Mrs.  Matthews,  personally.  With  this  latter  con- 
tract the  State  court  did  not  interfere.  It  enjoined  proceedings 
under  the  deed  of  trust  against  the  land  and  did  no  more. 

"  Its  judgment  in  that  matter  ought,  in  my  opinion,  to  be 
affirmed."  * 

The  rule  is  well  settled  that  a  national  bank  may  take  mort- 
gages on  real  estate  to  secure  the  payment  of  debts  which  have 
been  previously  contracted.'* 

It  is  also  held,  in  Howard  Xational  Bank  v.  Loomis,  51  Vt. 
349,  that  the  bank  does  not  violate  the  statute  by  an  agree- 
ment to  renew  the  notes  and  hold  the  mortgage  as  seciirity  for 
the  renewals. 

§  229.  Restrictions  against  savings  banks. 

The  express  restrictions  placed  against  savings  banks,  pro- 
hibiting them  from  loaning  the  money  of  the  depositors,  are 
those  which  are  enumerated  in  the  charter  of  the  coi^Doration 
or  the  statute  laws  of  the  State  where  the  bank  is  incorporated. 

Where  the  statute  of  the  State  expressly  prohibits  a  savings 
bank  association  from  investing  the  funds  of  its  depositors  on 
personal  security  loans,  a  loan  made  by  the  bank  in  violation 
of  such  a  provision  of  the  statute,  is  a  direct  violation  of  law, 
and  the  bank's  charter  may  be  taken  away  from  it  by  the  State, 
but  no  person  other  than  the  State  has  authority  to  bring  suit 
to"  have  its  franchise  forfeited;  and  where  it  has  loaned 
money  upon  securities  other  than  those  enumerated  by  the 
statute,  the  debtor  cannot  defeat  the  debt  by  pleading  a  Adola- 
tion  or  restriction  of  the  statute. 

A  statute  of  a  State  which  provides  that  it  shall  be  unlawful 

3  Crocker    v.    Whitney,    71    N.   Y.  4  First  Nat.  Bank  of  Skowhegan  v. 

161.  "  Maxfield,  83  Me.  576. 


328  Bank  Loans.  [ch.  xxiv. 

for  any  savings  and  loan  society  or  savings  bank  to  purchase, 
invest;  or  loan  its  capital,  or  the  money  of  its  depositors,  or 
any  part  of  either  in  mining  shares  or  stock,  and  which  de- 
clares that  if  any  president  or  managing  officer  who  knowingly 
consents  to  a  violation  of  such  provisions,  shall  be  deemed 
guilty  of  a  felony,  is  held  to  be  a  constitutional  law  and  can  be 
enforced. 

A  law  which  forbids  that  any  director  or  officer  of  any  sav- 
ings bank  from  directly  or  indirectly  borrowing  any  of  its  de- 
posits or  other  funds  of  such  corporation,  may  provide  also 
that  the  office  held  by  any  such  director  or  officer  shall  become 
immediately  vacant,  if  the  officers  borrow  any  of  such  funds. 

§  230.  Power  to  make  loans. 

Where  a  State  bank  has  made  a  loan  to  one  person  of  a 
sum  in  excess  of  one-tenth  part  of  its  capital,  and  the  bank  is 
thereafter  converted  into  a.  national  bank,  the  bank  may,  after 
conversion,  extend  the  time  for  payment  of  such  loan  without 
violating  the  law.*^ 

Where  a  party  is  sued  by  a  national  bank  for  moneys  it 
loaned  him,  he  cannot  set  up  as  a  bar  its  right  to  collect,  upon 
the  ground  that  the  amount  exceeds  one-tenth  of  the  capital 
paid  in.^ 

Though  a  national  bank  may  be  restricted  and  prohibited 
from  taking  its  own  stock  as  security  for  a  loan,  it  may  take 
the  stock  of  another  national  banking  association.^ 

A  national  banking  association  may  also  take  a  pledge  of 
personal  chattels  as  security  for  a  loan.* 

It  may  also  take  as  collateral  security  for  a  loan  a  ware- 
house receipt  for  merchandise.® 

A  national  bank  may  also  take  and  hold  as  collateral  se- 
curity for  a  loan,  a  locomotive.  ^^ 

A  national  bank  may  also  take  a  mortgage  upon  a  stock  of 
goods.^^ 

5  Allen  r.  First  Nat.  Bank  of  n  Cleveland.  Brown  &  Co.  r.  Shoe- 
Xenia,  23  Ohio  St.  97.  man,  40  Ohio  St.   176. 

6  Gold  Mininsf  Co.  r.  Roekr  Moun-  lO  Pittsburg  Locomotive  &  Car 
tain   Nat.   Bank,  96  U.   S.  640.  Works  r.  State  Nat.  Bank,  U.  S.  Cir. 

7  National  Bank  r.  Case,  99  U.  S.  Ct.  187.'):  Thompson's  Nat.  Bank 
628.  Cases,  315. 

8  Pittsburg  Locomotive  &  Car  n  Spoffard  r.  First  Nat.  Bank  of 
Works  V.  State  Nat.  Bank  of  Keo-  Tama  City,  37  Iowa,  18L 

kuk,  2  Cent.  L.  J.  692. 


CH.  XXIV.]  Baxkixg.  329 

While  a  national  bank  has  no  anthority  to  hold  or  retain 
certain  bonds  coming  into  its  possession  by  purchase  under  a 
contract,  it  has  the  right  to  hold  the  bonds  as  security  for  the 
return  of  the  consideration  paid  for  them,  but  when  such  an 
amount  is  returned  or  tendered  back  to  it  and  the  surrender 
of  the  bonds  is  demanded,  its  authority  to  retain  them  no 
longer  exists.  ^^ 

Where  a  stockholder  borrows  money  from  a  national  bank 
and  gives  as  security  for  such  loan,  certificate  of  his  shares  of 
the  bank's  stock,  he  cannot  recover  when,  on  nonpavment  of 
the  loan  the  bank  sold  his  stock  and  applied  the  proceeds  of 
the  sale  to  his  credit. ^^ 

Where  bonds  are  pledged  to  a  national  bank  as  collateral 
securfty  for  the  payment  of  a  note  discounted  by  the  bank ; 
held,  that  the  bank  is  bound  to  take  only  ordinary  care  of  the 
same.^^ 

When  shares  of  stock  in  a  private  corporation  are  pledged 
as  collateral  security  for  a  debt  and  default  is  made  in  the 
pa;\Tnent  of  the  debt  at  maturity,  the  pledgee  may  file  a  bill 
in  equity  to  foreclose  the  pledge  by  a  sale  under  the  order  of 
the  court,  or  he  may  exercise  the  implied  power  to  sell  without 
resorting  to  judicial  proceedings,  but  if  he  elects  to  pursue 
the  latter  remedy,  the  sale  must  be  at  public  auction  in  the 
absence  of  a  special  agreement,  and  reasonable  notice  must  be 
given  to  the  pledgor,  and  if  he  sells  privately  without  notice, 
becoming  himself  the  purchaser,  the  relation  between  him 
and  the  pledgor  is  not  thereby  dissolved. ^^ 

Where  the  debt  for  which  a  note  was  pledged  is  paid,  pend- 
ing an  action  on  the  note  by  the  pledgee ;  held,  that  the  latter 
may  continue  the  action  subject  to  all  equitable  defenses,  hold- 
ing the  proceeds  as  trustee  for  the  pledgor.  ^^ 

Where  a  national  bank  holds  collaterals  as  security  for  a  debt 
due  at  a  certain  time,  and  under  the  terms  of  the  contract  is 
authorized  to  sell  the  property  on  maturity  of  the  debt,  the 
bank  need  not  demand  payment  before  selling. -^^ 

12  Losan  Co.  Nat.  Bank  v.  Town-  is  Sharp     r.     Xational     Bank     of 
send,  1.30  U.  S.  67.  Birminrrham.  87  Ala.  644. 

13  First    Xat    Bank    of    Xenia    r.  16  First    Xat.    Bank    r.   Mann.   27 
Stewart.   107   U.   S.   676.  S.  W.   fTenn.)    101.5. 

14  -Jenkins     r.     Xational     Village  17  Franklin    Xat.    Bank    r.    Xew- 
Bank  of  Bowdoinham,  58  Me.  275.  combe  (Sup.),  37  X.  Y.  St.  271. 


330  Bank  Loaxs.  [ch.  xxiv. 

Where  collateral  security  is  held  for  a  debt,  it  is  the  duty  of 
the  pledgee  to  use  reasonable  diligence  to  j^rotect  the  security 
and  see  that  it  does  not  become  outlawed/* 

A  bank  has  the  power  to  loan  money  and  discount  notes,  de- 
ducting the  interest  in  advance. ^^ 

It  has  the  power  to  transfer  by  indorsement  or  delivery  ne- 
gotiable notes.^*^ 

An  officer  of  a  bank  who  makes  loans  has  the  authority  to 
arrange  for  security  for  the  same,  the  security  being  incidental 
to  the  making  of  the  loan  itself.^^ 

Commercial  banks  have  the  right  to  take  and  hold  stock 
and  bonds  as  collateral  security.^ 

To  hold  the  collateral  or  pledged  propertv  until  the  debt  is 
paid.23 

Stock  of  a  corporation  when  pledged,  does  not  become  the 
property  of  the  pledgee,  but  the  title  remains  in  the  pledgor, 
and  he  has  the  right  to  vote  the  same  at  a  stockholder's  meet- 
ing, and  is  entitled  to  antecedently  accrued  dividends  which 
have  been  declared  on  the  stock.  The  pledgee  has  no  title  to 
the  same  under  the  assignment.  The  profits  and  dividends 
which  have  accrued  and  have  been  declared  by  the  corpora- 
tion and  carried  to  the  credit  of  the  owner  of  the  stock  before 
assig-nment,  cannot  be  claimed  by  the  pledgee  whose  assign- 
ment is  subsequent. 

The  mother  bank  has  authority  to  collect  the  payment  of 
any  debts  due  the  branch.^ 

A  commercial  State  bank  can  receive  and  hold  its  own  stock 
as  collateral  security,  unless  a  statutory  enactment  inten^enes, 
and  can  purchase  the  same  at  a  sale  to  protect  itself  from  loss.^^ 

It  may  then  sell  the  stock  purchased  at  such  sale  and  take 
the  purchaser's  note  with  tlie  stock  as  c'ollateral  security."* 

18  Northwestern  Nat.  Bank  r.  J.  =2  5S  Me.  27.3,  44  Md.  47,  2  N.  J. 

Thompson   &   Sons  Mfg.   Co.    (C.  C.  Eq.   117. 

A.).  71  Fed.  113.  2.373  Cal.  302. 

i9Fleckner    r.    Bank.    8    \Yheat.  24  Smith    v.    Law.son,    18    W.   Va. 

338:  Bank  r.  Collector.  3  ^Yall.  495.  212. 

20  12  X.  Y.  223,  30  Me.  488,  25  Union    Nat.    Bank    r.    Hunt,    7 

21  .Jennings  r.  Bank  of  California,  Mo.  .App.  42. 

79  Cal    323  20X'nion    Nat.    Bank    r.    Hunt,   7 

Mo.   App.   42. 


CHAPTER  XXV. 


BANKS  BORROWING  MONEY. 

§  231.  National  bank,  extent  of  power. 

To  what  extent  and  for  what  purposes  can  a  "bank  borrow 
money  ?  Banks  are  not  organized  for  tlie  purpose  of  bor- 
rowing money.  It  is  their  business  to  loan  and  not  to  borrow. 
The  power  conceded  by  some  of  the  courts  that  they  may  bor- 
row money  for  the  purposes  of  reloaning  is  repugnant  to  bank- 
ing. It  is,  if  permitted,  as  a  privilege,  a  dangerous  practice 
and  an  incidental  power  which  may  be  used,  is  only  one  which 
should  be  exercised  with  great  discretion  and  care,  and  never 
without  the  expressed  authority  of  the  board  of  directors.  If 
the  authority  of  the  board  of  directors  is  obtained,  there  can 
be  no  question  raised  afterward  that  the  officers  acted  on  their 
own  responsibility. 

That  a  banking  corporation  may  borroANl  money  is  not  de- 
nied, but  this  power  is  not  an  expressed  power  granted  to  a 
national  bank.  The  statute  does  not  enumerate  this  privilege 
and  expressly  authorize  it.  A  national  bank  is  only  clothed 
with  incidental  power  to  borrow  money.  Being,  therefore, 
only  an  incidental  power,  it  is  one  which  should  only  be  exer- 
cised in  extreme  emergencies.  That  such  emergencies  may 
arise  are  not  questioned.  For  example,  when  a  run  sets  in 
against  the  bank,  and  it  becomes  necessary  to  meet  the  demand 
made  upon  it,  the  bank  being  solvent,  has  the  implied  author- 
ity to  borrow  money  to  such  an  extent  as  may  (if  possible)  be 
necessary  to  tide  the  bank  over. 

A  national  banking  corporation  it  has  been  held,  may  bor- 
row money  for  the  express  purpose  of  loaning  it  out  again  in 
order  to  make  a  margin  or  profit  on  the  interest  paid  and  that 
received.  It  is  very  difficult  to  accept  this  principle  or  privi- 
lege as  the  law  or  authority  given  to  national  banks. 

The  case  of  oSTational  Bank  of  Commerce  v.  Xational  Bank 
of  Missouri,  Fed.  Cas.  Xo.  18,310,  broadly  lays  down  the 
rule  that  a  national  bank  may  borrow  money  for  the  sole  pur- 

[331] 


332  Banks  Borkowixg  Moiniey.  [cii.  xxv. 

pose  of  lending  tlie  same  again  to  others  with  a  view  to  making 
a  profit. 

The  case  is  of  snch  importance  npon  this  subject,  it  is 
deemed  advisable  to  here  give  it  in  full: 

Statement  of  facts. 

"  This  was  an  action  at  law  by  the  National  Bank  of  Com- 
merce of  New  York  against  the  National  Bank  of  Missouri,  of 
St.  Louis,  which  suspended  in  June  1877,  to  recover  $400,000, 
and  accrued  interest,  the  remainder  of  a  loan  of  $1,000,000, 
made  by  the  plaintiff  to  the  defendant.  In  1866,  James  B. 
Eads,  James  H.  Britton,  John  J.  Roe,  Charles  K.  Dickson, 
Amos  Cotting,  Barton  Bates,  and  John  A.  Ubsdell,  the  di- 
rectors of  the  National  Bank  of  Missouri,  borrowed  $1,000,000 
of  the  circulating  notes  of  the  National  Bank  of  Commerce. 
The  claim  for  the  unpaid  balance  was  presented  to  the  re- 
ceiver of  the  defunct  bank  and  he  declined  to  allow  it,  on 
the  ground  that  the  bank  had  not  borrowed  the  money  but 
that  it  was  borrowed  by  the  above-named  directors  and  used 
by  them  for  their  individual  benefit,  and  that  the  bank  did  not 
enjoy  the  advantage  of  the  loan.  An  attempt  was  also  made 
to  show  that  the  defendant  had  no  right  to  borrow  money 
to  loan  again,  and  that  a  loan  of  this  character  was  illegal, 
and  kno'wn  to  the  plaintiff  to  be  illegal  when  made.  It  was 
shown,  in  effect,  that  wdien  the  negotiations  with  the  Baidv  of 
Commerce  were  opened,  Mr.  Eads  and  the  other  gentlemen 
named  were  not  directors  of  the  State  bank,  but  by  large  pur- 
chases of  the  stock  became  possessors  of  a  majority  and  elected 
themselves  directors  October  31,  1866,  and  that  tlie  loan  was 
completed  in  the  name  of  the  bank  by  contract,  dated  December 
26,  1866,  by  the  newly-elected  directors. 

Testimony  was  given  to  show  that  the  loan  was  made  only  for 
the  use  of  the  directors,  because  the  bank  itself  had  at  the 
time  $1,000,000  in  cash  and  $680,000  in  bonds  on  deposit  with 
the  Bank  of  Commerce,  and  it  was  part  of  the  contract  that 
this  deposit  should  remain  as  security  until  this  loan  was  paid. 

"  The  testimony  adduced  in  the  case  shows  tliat  the  $1,000,- 
000  loan  was  made  by  the  defendant  a  special  account  entered 
in  a  book  entitled  '  Bank  of  Commerce,  No.  3.'  The  directors 
gave  their  checks  on  the  funds  of  the  pool  and  drew  out  money 


CH.  XXV.]  B.VXKIXG.  333 

till  it  "U'!as  all  exhausted  except  $3,000,  which  stands  to-daj 
to  their  credit  on  the  books  of  the  suspended  bank.  These 
directors  returned  to  the  pool  the  amount  that  was  paid  back 
to  the  jSTew  York  bank  —  namely  $600,000  —  but  had  paid 
back  none 'of  the  balance  of  $400,000." 

The  opinion  of  the  Court  by  Justice  Dillon,  Circuit  Judge 
(charging  jury) : 

"  Opinion.  Under  the  pleadings,  the  defendant's  counsel 
conceded  at  the  opening  of  the  trial  that  the  plaintiff  was  en- 
titled to  the  sum  of  $-iOO,000  with  6  per  cent,  interest,  amount- 
ing in  all  to  the  sum  of  $445,582.10,  unless  the  defendant  es- 
tablished one  or  both  of  its  special  defences  to  the  action,  and 
accordingly  the  defendant  assumed  the  burden  of  proof  to  make 
out  such  defences.  The  defendant  has  accordingly  produced 
its  evidence,  and  at  its  close  the  plaintiff's  counsel  moves  the 
court  for  a  direction  to  the  juiy  that  such  e^ddence  has  failed 
to  establish  these  or  either  of  them,  and  that,  notwithstanding 
the  defendant's  evidence,  and  all  inferences  which  the  jury 
can  legitimately  or  properly  draw  from  it,  the  plaintiff  is  en- 
titled to  a  verdict. 

"  The  defences  relied  on  are  two: 

"1.  That  the  contract  of  December  26,  1866,  between  the  de- 
fendant bank  and  others,  and  which  is  the  basis  of  this  suit, 
and  under  which  the  $1,000,000  was  lent  by  the  plaintiff  bank, 
is  ultra  vires  the  lawful  power  of  the  defendant  bank ;  that 
is  to  say,  that  this  contract  was  one  which  the  defendant  bank 
had  no  power,  under  its  charter,  to  make  under  any  circum- 
stances, or,  at  all  events,  had  no  power  to  make  except  in  case 
the  situation  and  exigency  of  its  affairs  required  it  to  borrow 
money,  and  that  its  situation  was  such  that  it  did  not  need  to 
borrow  this  large  sum  of  money,  or  any  other  sum  of  money, 
and  that  knowledge  of  this  fact  is,  by  the  evidence,  fairly 
brought  home  to  the  plaintiff  bank.  I  am  of  opinion  that  a 
national  banking  association  has,  under  the  National  Banking 
Act  (13  Stat.  99),  the  power  to  borrow  money,  and  that  the  de- 
fendant bank,  in  the  absence  of  fraud  brought  to  the  knowledge 
of  plaintiff  bank,  had  the  power  to  enter  into  the  contract  of 
December  26,  1866,  which  is  the  foundation  of  this  action. 
The  legal  poiver  of  the  hmilc  to  horrow  money  does  not  depend 
upon  any  exigency  or  upon  the  existence  of  a  critical  coyidi- 


33-i  Banks   Bokrowikg  Money.  [ch.  xxv. 

Hon  of  its  affairSj  or  upon  an  actual  necessity  for  the  immediate 
use  of  the  sum  borrowed.  It  may  borrow  money  to  conduct 
and  carry  on  the  business  of  banking,  and  it  may  borrow  for  the 
express  purpose  of  lending  the  same,  either  by  discounting  tlic 
notes,  bills,  etc.,  of  others  or  on  personal  security,  ivith  a  view  lo 
profit  by  the  transaction.  The  loan  of  money  to  a  national 
bank  is  not  invalid  because  the  lender  may  know  or  have  reason 
to  believe  that  the  borrowing  bank  intends  to  lend  it,  when  re- 
ceived, to  others. 

"A  national  bank  may  lends  its  money  to  its  directors  as  well 
as  to  other  persons,  provided  it  acts  in  good  faith  and  does 
not  exceed  the  limitation  to  any  one  person  or  director  of  "  one- 
tenth  part  of  the  amount  of  the  capital  stock  of  the  association 
actually  paid  in."  There  is  no  claim  that  this  limitation  was 
exceeded  in  this  case,  as  the  capital  stock  of  the  bank  was 
$3,410,000  actually  paid  in.  -If  the  law  were  that  a  national 
bank  could  not  boiTow  money  for  the  purpose  of  lending  the 
same  again  to  its  directors,  and  that  if  the  lender  knew  that 
such  was  the  purpose  of  the  borrowing  bank,  the  transaction 
would  necessarily  be  invalid.  I  admit  that  the  evidence  in  the 
case  is  such  as  to  justify  the  court  to  submit  the  question  of 
the  plaintiff's  knowledge  of  such  a  purpose  to  the  jury.  But 
I  am  of  opinion  that  where  no  fraud  is  intended,  a  national 
bank  may  lend  its  money  to  its  directors,  and  the  fact  that  the 
lender  knows,  or  has  reason  to  believe,  that  when  the  money 
he  lends  is  received  it  will  be  lent  to  the  directors,  does  not, 
unless  he  knows,  or  has  good  reason  to  believe,  that  a  fraudu- 
lent use  or  disposition  of  it  is  contemplated  by  the  directors 
'when  received,  invalidate  the  transaction. 

"  The  directors  had  no  more  power  over  the  $1,000,000  ob- 
tained under  the  contract  in  suit  than  they  had  over  the  $1,000,- 
000  which  the  defendant  bank  had  on  ordinary  deposit  with  the 
plaintiff  bank,  or  over  the  $3,000,000  of  capital  actually  paid 
in.  A  lender  cannot  knowingly  aid  an  intended  fraud,  l>ut  he 
is  not  required  not  to  lend  because  the  borrowing  bank  may 
misuse  their  powers. 

"  2.  The  second  defence  is  that  the  money  was  procured  by 
the  defendant's  directors  (who  signed  tlie  contract  in  suit  pro- 
fessedly as  sureties),  not  for  the  bank,  but  for  their  own  pur- 
poses, and  that  they  fraudulently  made  use  of  the  name  of 


CH.  XXV.]  ,  Baxkixg.  335 

the  defendant  bank  as  principal,  intending  all  the  time  illegally 
to  approj)riate  the  money,  when  received,  to  their  own  use,  and 
that  the  plaintiff  bank  had  knowledge  of  such  intended  illegal 
appropriation  of  the  money.  These  facts,  as  established,  would 
constitute  a  defence,  but  after  carefully  considering  all  of  the 
evidence  touching  this  matter,  I  think  that  while  it  would  jus- 
tify the  jury  in  finding  that  the  directors  of  the  defendant 
bank,  when  the  money  was  received,  intended  to  borrow  the 
same  from  the  bank  of  which  they  were  directors,  and  thus  get 
the  use  of  it,  I  can  see  no  basis  in  the  evidence  which  would 
justify  the  juiy  in  finding  that  the  plaintiff  bank  knew  that  the 
directors  of  the  defendant  bank,  when  the  money  was  received, 
intended  to  make  any  fraudulent  use  or  disposition  of  it.  If 
the  jury  should  so  find,  I  shall  deem  it  my  duty  to  set  aside 
their  verdict,  and  hence  there  is  no  propriety  in  uselessly  sub- 
mitting this  question  to  them. 

"  I  therefore  instruct  you,  gentlemen  of  the  jury,  that  the 
defences  relied  on  have  failed,  and  that  you  shall  return  a  ver- 
dict for  the  plaintiff." 

This  case  is  cited  in  full  and  sustains  the  principle  and  au- 
thority of  the  bank  to  borrow  money  for  speculative  purposes. 

The  Court  says : 

"  The  legal  power  of  the  hanh  to  borrow  money  does  'not 
depend  upon  any  exigency  or  upon  the  existence  of  a  critical 
condition-  of  its  affairs,  or  upon  actual  necessity  for  the  im- 
mediate use  of  the  sum  borrowed.  It  may  borrow  money  to 
conduct  and  carry  on  the  business  of  banlcing,  and  it  may  bor- 
row for  the  express  purpose  of  loaning  the  same  by  discount- 
ing the  notes,  bills,  etc.,  of  others  or  on  personal  security  with  a 
view  to  profit  by  the  transaction." 

It  may  be  stated  that  the  language  of  the  court  can  be  easily 
understood.  It  is  plain  and  sets  forth  the  principle  clearly. 
Is  it  the  law  upon  this  subject  governing  a  national  bank? 
Are  the  incidental  and  implied  powers  such  powers  which  are 
authorized  to  be  used  without  limitation,  and  to  the  extent 
held  by  the  court  ?  These  questions  demand  a  careful  and 
impartial  consideration.  The  common-law  restriction  is,  that 
a  bank  cannot  borroiu  money  except  for  banking  necessities. 
Borrowing  money  to  reloan  for  a  profit  is  not  a  banking  ne- 
cessity.    The  Revised  Statutes  of  the  United  States,  §  5136, 


336  Ba^^ks  Bokeowiis'g  Moxey.  [ck.  xxv. 

defining  the  corporate  powers  of  a  national  bank,  in  article 
seven,  reads: 

^"Toexercisehy  its  Board  of  Directors  or  didij  authorized  offi- 
cers or  agents,  suhject  to  Jaw,  all  such  incidental  poivers  as  shall 
be  necessary  to  carry  on  the  business  of  banking  by  discounting 
and  negotiating  promissory  notes,  drafts,  bills  of  exchange  and 
other  evidences  of  debt,  etc.'' 

It  will  be  found  that  no  express  power  is  here  granted  and 
that  the  incidental  power  to  borrow  money  is  derived  from  the 
language  "^  to  exercise,  etc.,  all  such  incidental  powers  as  shall  be 
necessary  to  carry  on  the  business  of  banking  by  discounting  and 
negotiating  promissory  notes." 

The  language  used  in  the  Statute  implies  that  the  borrowing 
of  money  must  be  incidental  to  the  carrying  on  of  the  business 
of  banking.  The  question  reduces  itself  to  this ;  —  is  the  bor- 
rowing of  money  for  profit  and  to  be  re-loaned  for  that  pur- 
pose, a  part  of  the  legitimate  business  in  banking  ?  It  is  a  well 
defined  principle  in  banking  that  the  borrowing  of  money  is 
not  an  ordinaiy  practice  or  occurrence  usually  indulged  in. 
But  the  Court  says: 

ii~  *  *  it  may  borrow  money  to  conduct  and  cariw  on  the 
business  of  banking." 

If  money  can  be  borrowed  to  carry  on  the  business  of  bank- 
ing in  one  instance,  there  would  be  no  limitation  in  others. 
The  principle,  if  authorized  in  one  locality  certainly  is  lawful 
in  all  others.  While  a  bank  may  discern  an  opportunity  to 
make  a  profit  through  its  loans,  it  cannot  loan  all  its  funds 
or  deposits.  The  Statute  imposes  a  restriction  upon  it  in  this 
respect  and  requires  that  it  shall  retain  or  hold  a  fixed  reserve. 

The  business  of  a  bank  is  generally  conceded  to  be  conducted 
upon  its  capital,  deposits,  surplus  and  reserve  fund ;  and  the 
investment  or  loaning  by  the  bank  of  a  greater  portion  of 
these  sums  than  the  law  specially  provides  may  be  loaned,  is 
a  violation  of  law,  and  this  act  is  immediately  called  into  ques- 
tion by  the  Comptroller  of  the  Currency.  It  is  the  business 
of  the  bank  to  use  all  its  capital  and  deposits  permitted  to  be 
used  by  law,  to  tlie  very  best  advantage  possible  by  loaning 
the  same  under  the  restrictions  of  the  law.     This  is  carrying 


cii.  XXV.]  Bax^kixg.  337 

on  the  business  of  banking  and  conducting  it  ^vitliin  the  law 
and  to  the  limit  of  its  privileges. 

Monev  borrowed  by  a  bank  for  purposes  of  profit,  and  to 
be  re-loaned  again,  is  not  an  ordinary  power  or  privilege. 
Bankers  deem  such  an  act,  if  practiced  or  permitted,  as  dan- 
gerous, directing  danger.  Where  an  exigency  does  not  arise 
and  money  is  borrowed,  it  is  a  privilege  purely  speculative ; 
and  this  power  should  be  denied  to  banking  corporations,  both 
national  and  State. 

They  are  permitted  in  the  exercise  of  such  acts  only  as  are 
necessary  in  the  clue  attainment  of  their  objects,  and  conse- 
quently can  perform  no  acts,  enter  into  no  contracts  or  trans- 
actions, and  incur  no  liabilities  but  such  as  spring  out  of,  or 
are  otherwise  incidental  to  the  purpose  for  ivhich  they  are 
created} 

That  a  banking  corporation  is  endowed  with,  and  has  implied 
power  to  borrow  money  is  not  denied.  But  it  is  a  broad  con- 
struction of  the  statute  to  hold  that  a  banking  corporation  is 
organized  for  and  has  the  authority  of  borromng  money  to 
speculate  on.  If  it  could  borrow  money  to  carry  on  and  con- 
duct the  business  of  banking,  the  paid-up  capital  would  not  be 
a  necessity.  A  bank  is  organized  for  the  purpose  of  receiving 
money  on  deposit,  keeping  the  deposits  safely,  investing  them 
in  loans  allowed  by  law  and  enumerated  by  the  statute,  and 
returning  the  money  to  depositors  when  demanded. 

It  is  held  that  the  broadest  implied  power  given  to  a  bank 
is,  that  a  corporation  does  not  exceed  its  corporate  powers  by 
entering  into  such  obligations  or  contracts  absolutely  essential 
for  its  purposes  and  for  the  transaction  of  its  ordinary  affairs. 

The  Supreme  Court  of  the  United  States  has  not  laid  down 
any  binding  mle  upon  tlie  question,  but  has  decided  such  cases 
coming  before  it  upon  the  law  and  the  facts  surrounding  the 
case.  The  court  does  not  sanction  the  doctrine  laid  down  in 
the  case  of  Xational  Bank  of  Commerce  v.  National  Bank  of 
Missouri,  Fed.  Cas.  Xo.  18,310,  which  authorizes  national  banks 
"to  borrow  money  to  conduct  and  carry  on  the  busi^iess  of 
banl'ing."  This  rule  seems  very  broad.  If  this  is  the  law,  it 
would  give  the  bank  such  latitude  as  would  lead  to  serious 
abuses  and  results. 

1  Brice  ultra   viros,  p.   28. 

22 


338  Banks   Borrowing  Money.  [ch.  xxv. 

The  case  of  First  Xational  Bank  of  Charlotte  v.  Xational 
•Exchange  Bank  of  Baltimore,  92  U.  S.  122,  127,  raises  the 
question  indirectly  and  disposes  of  the  general  question  as  to 
the  implied  and  incidental  powers  of  a  bank  in  the  following 
language : 

"Authority  is  thus  given  to  transact  such  a  banking  business 
as  is  specified,  and  all  incidental  powers  necessary  to  carry  it 
on  are  granted.  These  powers  are  such  as  are  required  to 
meet  all  the  legitimate  demands  of  the  authorized  business, 
and  to  enable  a  bank  to  conduct  its  affairs,  within  the  general 
scope  of  its  charter,  safely  and  prudently.  This  necessarily 
implies  the  right  of  a  hank  to  incur  liabilities  in  the  regular 
course  of  its  business,  as  well  as  to  become  the  creditor  of  others. 
Its  o\YTi  obligations  must  be  met,  and  debts  due  to  it  collected 
or  secured.  The  power  to  adopt  reasonable  and  appropriate 
measures  for  these  purposes  is  an  incident  to  the  power  to  incur 
the  liability  or  become  the  creditor.  Obligations  may  be  as- 
sumed that  result  unfortunately.  Loans  or  discounts  may  be 
made  that  cannot  be  met  at  maturity.  Compromises  to  avoid 
or  reduce  losses  are  oftentimes  the  necessary  results  of  this 
condition  of  things.  These  compromises  come  within  the  gen- 
eral scope  of  the  powers  committed  to  the  board  of  directors 
and  the  officers  and  agents  of  the  bank,  and  are  submitted 
to  their  judgment  and  discretion,  except  to  the  extent  that 
they  are  restrained  by  the  charter  or  by-laws.  Banks  may  do, 
in  this  behalf,  whatever  natural  persons  could  do  under  like 
circumstances." 

The  question  of  the  power  of  the  bank  to  borrow  money 
was  not  the  direct  question  before  the  court  in  the  case  above 
cited;  but  the  court  in  this  case  emphasizes  the  law  and  inci- 
dental powers  of  a  bank,  to  be  only  those  Avhich  necessarily 
may  be  used  to  carry  out  the  express  powers  and  incidental 
powers  necessary  to  carry  on  the  business  of  banking. 

In  the  case  of  The  Western  j^ational  Bank  v.  Armstrong, 
152  U.  S.  346  (appeal  from  the  Circuit  Court  of  the  United 
States  for  the  Sourthern  District  of  Ohio),  the  question  of 
borrowing  money  and  power  of  a  national  bank  to  do  so  is 
directly  discussed  by  tlie  court. 

The  opinion  of  the  court  in  tliis  case  is  as  follows: 

Mr.  Justice  Sliiras,  delivering  the  opinion  of  the  court,  says: 


CH.  XXV.]  Backing.  339 

'MVhether  the  transaction  of  May,  1887,  was  a  discount  by 
the  "Western  National  Bank  of  Xew  York  in  favor  of  E.  L, 
Harper  of  the  four  notes  made  by  A.  P.  Gahr  and  indorsed  by 
Harper,  or  was  a  loan  by  said  bank  to  the  Fidelity  Xational 
Bfcnk,  is  the  question  principally  discussed  in  the  briefs  and 
oral  arguments  of  the  respective  parties. 

"  In  disposing  of  the  case  we  are  not  assisted  by  any  findings 
or  opinion  by  the  court  below,  and  we  are  left  to  conjecture  the 
grounds  upon  which  that  court  proceeded  in  dismissing  the  bill 
of  complaint. 

"  The  theory  that  the  case  was  that  of  a  single  discount  by 
the  Xew  York  bank  of  four  promissory  notes,  made  by  Gahr 
and  indorsed  by  Harper,  and  secured  by  the  assigimient  by 
Harper  of  certificates  of  1,600  shares  of  the  stock  of  ihe 
Fidelity  Xational  Bank,  comports  with  the  form  of  the  notes 
themselves.  Such  a  transaction  would  have  been  an  ordinary 
one,  and  in  the  course  of  the  usual  business  of  such  a  bank. 
The  letter  of  May  16,  1887,  in  which  the  proposition  was  made 
to  the  Xew  York  bank  to  make  the  loan,  was  signed  by  E.  L. 
Harper  in  his  own  name,  without  any  official  designation. 
That  the  $200,000  were  placed  on  the  books  of  the  Xew  York 
bank  to  the  credit  of  the  Ohio  bank  was  no+  inconsistent  wi^h 
this  version  of  the  case,  because  it  appears  that  this  was  done 
at  the  request  of  Harper. 

"  On  the  other  hand,  it  is  claimed  that  because  the  letter  of 
May  16,  18S7,  was  written  on  the  letter  paper  of  the  Fidelity 
Xational  Bank,  and  because  the  proceeds  of  the  discount  were 
placed  to  the  credit  of  the  Ohio  bank,  and  were  drawn  out  by 
drafts  of  that  bank,  the  transaction  was  thereby  shown  to  have 
been  made  on  behalf  of  the  Ohio  bank.  And  C.  X.  Jordan, 
vice-president  of  the  Xew  York  bank,  testified  that  he  under- 
stood the  proposition  to  come  from  the  Ohio  bank  for  a  loan  to 
it.  and  that  he  would  not  have  submitted  the  matter  for  approval 
to  the  board  of  the  Xew  York  bank  had  he  not  so  understood  it. 

"  There  are  other  features  of  the  correspondence  that  are 
pointed  to  by  the  parties  as  making  for  their  respective  conten- 
tions. It  may  be  conceded  that  the  Xew  York  bank  acted  upon 
the  theory  that  the  loan  was  to  the  Ohio  bank,  and  took  the 
notes  and  certificates  of  stock  as  collateral.  But  the  liability 
of  the  Ohio  bank  is  not  a  necessary  consequence  of  such  a  con- 


o40  Banks   Borrowing  Money.  [en,  xxv. 

cession.  It  has  further  to  be  shown  that  the  Ohio  bank  was 
reallv  a  party  to  the  transaction,  either  by  having  autliorized 
Harper  to  effect  the  loan  on  its  behalf,  or  by  having  ratified  his 
action  and  having  accepted  and  enjoyed  the  proceeds  of  the 
discount. 

''  There  is  no  evidence  whatever  that  the  board  of  directors 
of  the  Fidelity  National  Bank  gave  any  authority  to  Harper 
to  borrow  money  on  behalf  of  the  bank,  much  less  to  borrow 
so  enormous  a  sum  on  so  long  a  time.  In  this  respect  the  com- 
plainant's case  stands  barely  on  the  assertion  in  the  bill  that 
'  Harper  was  the  vice-president  and  general  manager  of  the 
Fidelity  iSTational  Bank,  with  full  authority  to  make  said  loan 
on  its  behalf.'  The  only  evidence  we  find  in  the  record 
tending  to  support  such  averment  is  found  in  the  answer  by 
J.  Harvey  Waters,  the  general  book-keeper  of  the  Fidelity 
National  Bank,  on  cross-examination,  wherein  he  stated  that 
E.  L.  Harper  was  the  vice-president  and  managing  officer,  and 
that  by  '  managing  officer '  he  meant  that  Harper  was  '  the 
general  manager  of  the  business  of  the  bank.'  ISTo  such  office 
as  that  of  '  general  manager  '  is  known  or  named  in  the  National 
Bank  Acts,  nor  does  any  such  office  exist  by  usage.  The  most 
that  can  be  claimed  in  this  case  is  that  Harper  acted  as  the 
principal  executive  officer  of  the  bank.  It  cannot  be  pretended 
that,  as  such,  he  had  power,  without  authority  from  the  board, 
to  bind  the  bank  by  borrowing  $200,000  at  four  months'  time. 

"  It  might  even  be  questioned  whether  such  a  transaction 
Avould  be  within  the  power  of  the  board  of  directors.  The 
powers  expressly  granted  are  stated  in  the  eighth  section  of  the 
National  Bank  Act  (Rev.  Stat.,  p.  5136,  par.  Y).  A  national 
bank  can  '  exercise  by  its  board  of  directors,  or  duly  authorized 
officers  or  agents,  subject  to  law,  all  such  incidental  powers 
as  shall  be  necessary  to  carry  on  the  business  of  banking,  by 
discounting  and  negotiating  promissory  notes,  drafts,  bills  of 
exchange,  and  other  evidences  of  debt;  by  receiving  deposits; 
by  buying  and  selling  exchange^  coin,  and  bullion;  by  loaning 
money  on  personal  security,  and  by  obtaining,  issuing,  and 
circulating  notes.' 

"  The  power  to  borrow  money  or  to  give  notes  is  not  ex- 
pressly given  by  the  act.  The  business  of  the  bank  is  to  lend, 
not  to  borrow,  money;  to  discount  the  notes  of  others,  not  to 


CM.  XXV.]  Bai^kixg.  341 

get  its  own  notes  discounted.  Still,  as  was  said  by  this  court, 
in  the  case  of  First  National  Bank  v.  l^ational  Exchange  Bank, 
92  U.  S.  122,  127,  '  authority  is  thus  given  in  the  act  to  transact 
such  a  banking  business  as  is  specified,  and  all  incidental  powers 
necessary  to  carry  it  on  are  granted.  These  powers  are  such 
as  are  required  to  meet  all  the  legitimate  demands  of  the  au- 
thorized business,  and  to  enable  a  bank  to  conduct  its  affairs, 
within  the  general  scope  of  its  charter,  safely  and  prudently. 
This  necessarily  implies  the  right  of  a  bank  to  incur  liabilities 
iji  the  regular  course  of  its  business,  as  well  as  to  become  the 
creditor  of  others.' 

"  Nor  do  we  doubt  that  a  bank,  in  certain  circumstances, 
may  become  a  temporary  borrower  of  money.  Yet  such  trans- 
actions would  he  so  much  out  of  the  course  of  ordinary  and 
legitimate  hanhing  as  to  recjuire  those  making  the  loan  to  see 
to  it  that  the  officer  or  agent  acting  for  the  hank  had  special 
authority  to  horroiv  money. 

"  Even,  therefore,  if  it  be  conceded  that  it  was  within  the 
power  of  the  board  of  directors  of  the  Fidelity  National  Bank 
to  borrow  $200,000  on  time,  it  is  yet  obvious  that  the  vice- 
president,  however  general  his  powers,  could  not  exercise  such 
a  power  unless  specially  authorized  so  to  do,  and  it  is  equally 
obvious  that  persons  dealing  with  the  bank  are  presumed  to 
know  the  extent  of  the  general  powers  of  the  officers. 

"  Without  pursuing  this  part  of  the  subject  further,  we 
think  it  evident  that  Harper  had  no  authority  to  borrow  this 
money,  and  that  the  bank  cannot  be  held  for  his  engagements, 
even  if  made  in  behalf  of  the  bank,  unless  ratification  on  the 
part  of  the  bank  be  shown.  It  is  scarcely  necessary  to  say  that 
a  ratification,  to  be  efficacious,  must  be  made  by  a  party  who 
had  power  to  do  the  act  in  the  first  place ;  that  is,  in  the  present 
case,  the  board  of  directors;  and  that  it  must  be  made  with 
knowledge  of  the  material  facts.  There  is  not  the  slightest  evi- 
dence shown  in  this  record  that  the  board  of  the  Fidelity 
National  Bank,  by  any  act,  formal  or  informal,  undertook  to 
ratify  Harper's  action  in  the  premises,  or  that  they  ever  had 
any  knowledge  of  the  transaction. 

"  It  is  true  that  a  corporation  may  become  liable  upon  con- 
tracts assumed  to  have  been  made  in  its  behalf  by  an  unauthor- 
ized agent  by  appropriating  and  retaining,  with  knowledge  of 


oi'2  Baxks   Bokkowixg  Moxey.  [ch.  xxv. 

tlie  facts,  the  benefits  of  the  contracts  so  made  on  its  behalf. 
But  there  is  no  room  for  such  a  contention  in  the  present  case. 
The  money  advanced  by  the  New  York  bank  was,  indeed,  at 
Harper's  request,  placed  to  the  credit  of  the  Ohio  bank,  but  it 
was  shoM'n  that  it  was  withdrawn  partly  by  Hopkins,  the  assist- 
ant cashier,  and  partly  by  Harper  himself,  by  drafts  in  the 
name  of  the  bank,  but  that  the  moneys  thus  drawn  never  came 
into  the  actual  possession  or  use  of  the  bank.  The  moneys 
were  appropriated  by  Harper  to  his  own  use,  or,  at  all  events, 
it  does  not  appear  that  the  bank  ever  got  a  penny  of  the  bor- 
rowed money  or  any  benefit  or  advantage  whatever  by  reason 
of  the  transaction.  The  mere  placing  of  the  money  in  the 
name  of  the  Ohio  bank  involved  no  ratification  by  the  bank 
unless  it  was  so  placed  with  their  knowledge  and  assent,  nor 
did  the  withdrawal  of  the  money  by  drafts  drawn  by  Harper 
or  by  his  direction  in  the  name  of  the  bank,  constitute  a  receipt 
by  the  bank  of  such  money,  unless  it  was  in  point  of  fact,  re- 
ceived and  used  by  the  bank  or  for  its  benefit.  Not  this,  but 
the  contrary  was  shown. 

"  So  far,  then,  as  the  case  of  the  plaintiff  in  error  depends 
on  the  alleged  loan  of  money  to  the  Fidelity  National  Bank,  we 
find  no  error  in  the  decree  of  the  court  below  in  dismissing  the 
bill. 

''  This  brings  us  to  the  consideration  of  the  other  phase  of  the 
ease,  namely,  that  Avhicli  arose  on  the  claim  of  the  New  York 
bank  as  the  holder  of  1,600  shares  of  the  stock  of  the  Fidelity 
National  Bank,  transferred  to  it  as  security  by  Harper,  to  be 
subrogated  to  the  supposed  right  of  Harper  to  be  repaid  the 
moneys  paid  in  by  him  on  account  of  his  subscription  for  an 
increase  of  stock,  not  voted  for  by  the  stockholders,  and  not 
approved  by  the  Comptroller  of  the  Currency. 

''  The  court  below  sustained  the  demurrer  to  this  portion  of 
the  bill.  Two  grounds  were  asserted  in  the  demurrer  —  one, 
the  insufficiency  of  parties,  in  that  neither  the  Fidelity  National 
Bank  nor  Harper  were  made  parties;  the  other,  that  of  multi- 
fariousness. It  is  now  contended  before  us  that  Harper  was 
not  a  necessary  party  because,  as  is  averred  in  the  bill  and 
admitted  by  the  demurrer,  he  had  pledged  and  assigned  this 
stock  to  the  complainant  bank,  and  it  is  argued  that  the  bank 
thereby  became  vested  with  whatever  rights  Harper   had  to 


cii.  XXV.]  Banking.  343 

have  his  money  returned  to  him  as  a  special  deposit.  It  is  also 
contended  that  asserting  such  a  right  of  subrogation  is  so  far 
within  the  equities  of  the  bill,  and  so  necessary  an  incident  of 
the  transaction,  as  to  relieve  the  bill  of  the  charge  of  being 
multifarious. 

"  It  is  not  easy  to  see  why,  if  the  complainant  were  really 
entitled  to  be  subrogated  to  the  rights  of  Harper  in  respect  to 
the  hypothecated  stock,  such  a  claim  might  not  be  set  up  in  the 
same  bill  in  which  it  seeks  to  be  allowed,  as  a  lender  of  money 
to  the  Fidelity  Xational  Bank,  to  participate  in  the  payments 
made  by  the  receiver. 

"  But,  however  that  may  be,  it  seems  to  us  that  Harper, 
having  procured  an  issue  to  himself  of  certificates  of  paid-up 
stock,  was  in  no  position,  when  the  bank  became  insolvent, 
before  the  necessary  steps  to  legitimatize  the  increase  of  stock 
had  been  taken,  to  demand  back  his  money,  as  if  it  were  trust 
money,  or  constituted  a  preferred  claim  against  the  assets  of 
the  bank  in  the  hands  of  the  recei\"er.  The  utmost  that  he 
could  claim  would  be  to  be  treated  as  a  general  creditor,  and 
entitled  as  such  to  participate  in  the  payments  made  by  the 
receiver. 

"  In  the  case  of  Winters  v.  Armstrong,  Armstrong  v.  Stan- 
age,  37  Fed.  Rep.  508,  which  was  the  case  of  a  suit  by  the  re- 
ceiver of  the  Fidelity  Xational  Bank  to  recover,  from  a  sub- 
scriber to  the  preferred  increase  of  stock  of  that  bank,  the 
amount  of  a  promissory  note  given  in  payment  of  such  sub- 
scription, it  was  held  by  Mr.  Justice  Jackson,  then  circuit  judge, 
that,  as  the  necessary  steps  had  not  been  taken  to  legitimatize 
such  increase  of  stock  before  the  bank  became  insolvent,  there 
was  a  failure  of  consideration,  and  the  receiver  could  not 
enforce  payment  of  the  note.  We,  however,  agree  with  the 
court  below  in  thinking  that  such  a  question  could  not  be  raised 
in  the  present  case,  to  which  Harper  was  not  a  party.  Harper 
had  paid  in  the  full  amount  of  his  subscription,  and  had  pro- 
cured the  issue  to  himself  of  certificates  for  his  stock,  and  had 
parted  wath  the  legal  title  to  the  stock  by  transferring  the  cer- 
tificates to  the  Xew"  York  bank.  In  such  circumstances  it  might 
be  claimed  with  some  appearance  of  justice,  that  Harper  and 
his  transferee  were  precluded  from  opening  up  the  transaction 
and  procuring  a  recission  of  the  subscription.     If  that  were  so. 


344  BaXKS    BoKRGWI>rG    MOXEY.  [CH.  XXV. 

the  holder  of  such  stock,  whether  Harper  or  the  Xew  York 
bank,  might  have  been  compelled  to  contribute  to  the  payment 
of  the  indebtedness  of  the  insolvent  bank.^ 

"  So,  too,  even  if  it  were  held  that  Harper  was  not  precluded 
from  surrendering  his  stock  and  recovering  back  the  money 
paid  on  account  of  it,  it  might  yet  be  made  to  appear  that 
Harper,  if  he  were  answerable  for  the  mismanagement  which 
resulted  in  the  bank's  insolvency,  could  not,  in  a  court  of  equity, 
and  as  against  the  creditors  of  the  bank,  recover  back  his  sub- 
scription money.  But  it  is  plain  that  such  questions  as  these 
could  not  be  adjudicated  in  the  absence  of  Harper  as  a  partv, 
and  we  therefore  think  the  court  below  did  not  err  in  sustaining 
the  demurrer  for  that  reason. 

"  Upon  the  whole,  we  are  of  the  opinion  that  the  decree  of 
the  court  below,  in  sustaining  the  demurrer,  and  in  dismissing 
the  bill,  should  be  affirmed." 

The  court  does  not  here  expressly  hold  that  the  transaction 
Avas  a  loan,  but  says  that: 

"  "  *  *  j^  may  be  conceded  that  the  Xew  York  Bank 
acted  upon  the  theory  that  the  loan  was  to  the  Ohio  Bank,  and 
took  the  notes  and  certificates  of  stock  as  collateral." 

And  further  says: 

«  *  *  *  ]3^-j^  ^l^g  liability  of  the  Ohio  Bank  is  not  a 
necessary  consequence  of  such  a  concession." 

The  court  further  says,  in  laying  down  the  principle  of  an 
executive  officer  of  a  bank  as  to  his  power  and  authority  to 
contract  indebtedness: 

"  *  *  *  The  most  that  can  be  claimed  in  this  case,  is, 
that  Harper  acted  as  principal  executive  officer  of  the  bank. 
It  cannot  be  pretended  as  such  that  he  had  power  without  au- 
thority from  the  board,  to  bind  the  bank  by  borrowing 
$200,000  at  four  months'  time." 

And  further  says: 

«  *  *  *  j|.  i^-iiglit  even  be  questioned  whether  such  a 
transaction  would  be  within  the  power  of  the  board  of 
directors." 

The  court  here  cites  Revised  Statutes  IT.  S.,  section  513G. 
It  then  proceeds  to  lay  down  the  principle  of  restrictions  upon 

2  National  Bank  r.  Case,  99  U.  S.   628. 


CH.  XXV.]  ■  Banking.  345 

a  bank  to  borrow  money  or  give  notes,  as  the  privilege  is  not 
expressly  provided  for  under  the  statutes. 

The  court  says: 

"  The  power  to  borrow  money  w  to  give  notes  is  not  expressly 
given  by  the  act.  The  business  of  a  bank  is  to  lend,  not  to 
borrow  money;  to  discount  the  notes  of  others,  not  to  get  its 
ovm  notes  discounted." 

The  last  quotation  is  thrown  into  italics  to  enforce  the  fact 
that  the  court  has  not  bound  itself  by  a  general  rule,  and  laid 
down  the  doctrine  to  be  that  a  national  bank  can  borrow  money 
under  any  and  all  circumstances,  for  the  pui-pose  of  carrying 
on  and  conducting  a  banking  business.  The  court  proceeding, 
then  cites  from  its  former  opinion  in  the  case  of  First  National 
Bank  V.  National  Exchange  Bank,  92  U.  S.  122,  127,  which 
has  previously  been  quoted.  The  court  then  proceeds  and 
lays  down  the  principle  that  circumstances  may  arise  when  a 
bank  would  be  justified  in  becoming  a  temporary  borrower  of 
money,  and  uses  the  following  language: 

"Nor  do  ive  doubt  that  a  bank  in  certain  circumstances  may 
become  a  temporary  borrower  of  money,  yet  such  transaction 
would  be  so  much  out  of  the  course  of  ordinary  and  legitimate 
banking  as  to  require  those  making  the  loan  to  see  to  it  that  the 
officer  or  agent  acting  for  the  bank  had  special  authority  to 
boiTOW  the  money." 

This  quotation  is  also  thro^^^l  into  italics  to  enforce  the  fact 
that  the  court  has  reserved  itself,  and  does  not  authorize  the 
principle  or  privilege  of  a  bank  to  borrow  money  to  carry  on  the 
business  of  banking,  but  holds  that  certain  circumstances  may 
arise  when  the  bank  would  be  justified  in  borrowing  money. 

The  power  to  borrow  money  by  discounting  notes  is  again 
discussed  by  the  Supreme  Court  in  the  case  of  Auten  v.  U.  S. 
National  Bank  of  New  York,  17-4  U.  "  S.  125-143.  The 
syllabus  of  this  case  is  as  follows: 

"  In  June,  1892,  the  United  States  National  Bank  of  New 
York,  by  letter,  solicited  the  business  of  the  First  National 
Bank  of  Little  Eock,  Arkansas.  The  latter,  through  its  presi- 
dent, accepted  the  proposition,  and  opened  business  by  enclos- 
ing for  discount,  notes  to  a  large  amount.  This  business  con- 
tinued for  some  months,  the  discounted  notes  being  taken  up 
as  maturing,  until  the  Arkansas  bank  suspended  payment,  and 


340  Banks   Bokrowixg  Mo:n^ey.  [ch.  xxv. 

went  into  the  hands  of  a  receiver.  At  that  time  the  Xew 
York  bank  held  notes  to"  a  large  amount,  which  it  had  acquired 
bj  discounting  them  from  the  Arkansas  bank.  These  notes 
have  been  duly  protested  for  non-payment  and  the  payment 
of  the  fees  of  protest  made  bv  the  Xew  York  bank  have  been 
charged  to  the  Arkansas  bank  in  account.  The  receiver  re- 
fused to  pay  or  allow  them.  At  the  time  of  the  failure  of  the 
Arkansas  bank  there  was  a  slight  balance  due  it  from  the  Xew 
York  bank,  which  the  latter  credited  to  it  on  account  of  the 
sum  which  was  claimed  to  be  due  on  the  notes  after  the  re- 
fusal of  the  receiver  to  allow  them.  The  Xew  York  bank 
commenced  this  suit  against  the  receiver  to  recover  the  balance 
which  it  claimed  was  due  to  it.  The  receiver  denied  all  lia- 
bility and  asked  judgment  in  his  favor  for  the  small  balance 
in  the  hands  of  the  Xew  York  bank.  It  was  also  set  up  that 
the  notes  discounted  by  the  Xew  York  bank  were  not  for  the 
benefit  of  the  Arkansas  bank,  but  for  the  benefit  of  its  presi- 
dent, and  that  the  Xew  York  bank  was  charged  \\'ith  notice 
of  this.  The  judgment  of  the  trial  court,  which  was  affirmed 
by  the  Circuit  Court  of  Appeals,  was  for  the  full  amount  of 
the  notes,  less  the  set-off.  In  this  court  motion  was  made  to 
dismiss  the  writ  of  error  on  the,  ground  that  jurisdiction  below 
depended  on  diversity  of  citizenship,  and  hence  was  final. 
Held: 

1st.  That  the  receiver,  being  an  officer  of  the  United  States, 
the  action  against  him  was  one  arising  under  the  laws  of  the 
United  States,  and  this  court  had  jurisdiction. 

2nd.  That  it  was  competent  for  the  directors  of  the 
Arkansas  bank  to  empower  the  president  or  cashier,  or  both  to 
indorse  the  paper  of  the  bank,  and  that,  under  the  circum- 
stances, the  Xew  York  bank  was  justified  in  assuming  that  the 
dealings  with  it  were  authorized  and  were  executed  as  au- 
thorized. 

3rd.  Tliat  the  set-off  ha^dng  been  allowed  by  the  Xew  York 
bank  in  account,  the  receiver  was  entitled  to  no  other  relief. 

It  should  l)e  noticed  that  the  First  Xational  Bank  of  Little 
Rock  was  not  a  direct  borrower  from  the  Xew  York  bank. 
The  Xew  York  bank  was  its  correspondent,  and,  as  is  the  usual 
custom,  accepted  the  Little  Rock  bank  notes  executed  to  it 
in  the  usual  course  of  business,  and  these  notes  were  forwarded 


CH.  XXV.  J  Ba2s"kixg.  347 

to  the  New  York  bank  and  by  it  discounted.  The  Little  Rock 
bank  afterwards  failing,  was  placed  in  the  hands  of  a  receiver. 
It  was  found  that  there  was  a  balance  due  the  New  York  bank 
upon  notes  which  it  had  discounted  for  the  Little  Rock  bank, 
which  had  not  been  paid.  The  receiver  denied  the  liability 
and  claimed  the  notes  were  not  discounted  for  the  benefit  of 
the  Little  Rock  bank,  but  for  the  benefit  of  the  president,  and 
that  the  Xew  York  bank  was  charged  with  notice  of  this.  But 
the  facts  showed  that  the  transactions  were  authorized  by  the 
directors  and  the  judgment  was  in  favor  of  the  L'nited  States 
National  Bank. 

There  is  nothing  in  this  case  to  show  that  the  Little  Rock 
liank  borrowed  money  on  demand  or  on  time,  by  executing  its 
note  for  the  purpose  of  conducting  or  carrying  on  the  busi- 
ness of  banking;  but  it  was  discounting  notes  which  is  usual  in 
the  transactions  of  banking. 

The  usual  and  customary  transactions  of  banking  and  those 
which  occur  daily  between  banks,  such  as  discounting  and  re- 
discounting  notes,  comes  \\ithin  the  legitimate  powers  of 
banking. 

This  may  be  called  "  borrowing  and  loaning  money,"  and 
such  transactions  which  occur  daily  and  hourly  between  banks 
are  not  characterized  as  unlawful  acts.  But  there  is  a  wide 
difference  between  such  common  and  usual  transactions,  and 
those  which  are  unusual  and  out  of  the  ordinary.  As,  for 
example,  the  borrowing  of  money  to  conduct  and  carry  on  the 
business  of  banking  for  the  purpose  of  profit.  Discounting 
and  re-discounting  notes  is  specially  provided  for  and  allowed 
by  the  statute  and  is  an  ordinary  transaction  as  before  stated. 
But  borro'\\ang  money  is  an  unusual,  extraordinary  necessity 
seldom  resorted  to,  and  should  not  be  allowed  to  be  abused, 
and  only  used  in  cases  of  exigency  and  under  critical  conditions 
which  may  arise  from  the  business  of  banking. 

The  court  in  discussing  the  subject  generally,  says: 

"  The  very  object  of  banking  is  to  aid  the  operation  of  the 
laws  of  commerce  by  serving  as  a  channel  for  carrying  money 
from  place  to  place,  as  the  rise  and  fall  of  supply  and  demand 
require;  and  it  may  be  done  by  re-discounting  the  bank's 
paper,  or  by  some  other  power  of  borrowing  money." 

The  court  further  says: 


34S  Baxks  Bokeowing  !Moxey.  [ch.  xxv. 

"A  power  so  useful  cannot  be  said  to  be  illegitimate,  and 
declared  as  a  matter  of  law  to  be  out  of  the  usual  course  of 
business;  and  to  charge  everybody  connected  with  it  with 
knowledge  that  it  may  be  in  excess  of  authority,  it  Avould 
seem  if  doubtful,  more  like  a  question  of  fact  to  be  solved  in 
the  particular  case  in  the  usage  of  the  party  or  the  usage  of 
the  community." 

The  court  here  again  leaves  such  cases  to  be  determined 
upon  the  facts,  usage  of  the  parties  or  the  usage  of  the  com- 
munity where  they  may  arise. 

The  question  of  power  of  a  national  bank  to  borrow  money 
was  again  brought  before  the  Supreme  Court  of  the  United 
States  in  the  case  of  Aldrich  v.  Chemical  Xational  Bank,  176 
II.  S.  618,  where  this  case  and  Western  National  Bank  v. 
Armstrong,  152  U.  S.  3-46  is  disting-uished.  The  court  in  its 
opinion  says: 

'^  "We  have  then,  a  case  in  which  a  national  bank  ha-^dng 
used  in  its  business,  money  which  a  vice-president  obtained 
as  a  loan  from  it  to  another  national  bank,  denies  all  liability 
to  account  for  the  same  upon  the  ground  that  the  loan  was 
not  negotiated  by  it  or  by  its  directors,  as  well  as  upon  the 
ground  that  it  could  not  itself  have  legally  borrowed  the 
money  from  the  other  bank. 

"  Do  the  statutes  relating  to  the  Xational  Banking  Associa- 
tion require  that  such  a  defense  be  sustained?  This  question 
is  recognized  by  the  court  as  one  of  great  importance  and  has 
received  careful  consideration  in  the  light  of  adjudicated  cases. 
We  proceed  to  the  further  examination  of  these  cases." 

The  court,  citing  many  cases,  then  concludes  its  opinion  in 
the  following  language: 

"  Without  further  citation  of  cases  we  adjudge,  both  upon 
principle  and  authority,  that  as  the  money  of  the  Chemical 
Bank  was  obtained  under  a  loan  negotiated  by  the  vice-presi- 
dent of  the  Fidelity  Bank  who  assumed  to  represent  it  in  the 
transaction,  and  as  tlie  Fidelity  Bank  used  the  money  so  ob- 
tained in  its  banking  business  and  for  its  own  benefit,  the 
latter  bank  having  enjoyed  the  fruits  of  the  transaction  cannot 
avoid  accoimtability  to  the  jSTew  York  bank,  even  if  it  were 
true  as  contended  that  the  Fidelity  Bank  could  not  consist- 
ently with  the  law  of  its  creation  have  itself  borrowed  the 


CH.  XXV.]  Baxkixq.  .  349 

money,  "When,  as  the  result  of  its  arrangement  with  Harper 
as  vice-presendent,  the  Chemical  Bank  credited  the  Fidelity 
Bank  on  its  books  with  the  sum  of  $300,000,  the  former 
thereby  undertook  to  pay  the  checks  of  the  latter  to  the  extent 
of  that  credit.  And,  as  already  stated,  that  credit  was  fully 
exhausted  by  the  payment  of  the  checks  of  the  Fidehty  Bank 
drawn  in  the  ordinary  course  of  its  business.  If  the  latter 
bank  in  this  way  used  the  money  obtained  from  the  Chemical 
Bank,  it  is  under  an  implied  obligation  to  pay  it  back  or  ac- 
count for  it  to  the  Xew  York  bank.  It  cannot  escape  lia- 
bility on  the  ground  merely  that  it  was  not  permitted  by  its 
charter  to  obtain  money  from  another  bank.  Suppose  the 
Fidelity  Bank  by  its  check  upon  the  Chemical  Bank,  had 
drawn  the  whole  $300,000  at  one  time  and  now  has  the  money 
in  its  possession  unused  ?  It  would  not  be  allowed  to  hold 
the  money  even  if  it  were  without  power  under  its  charter  to 
have  borrowed  it  from  the  Chemical  Bank  for  use  in  its 
business. 

"  Or  suppose  a  national  bank,  in  violation  of  the  act  of 
Congress,  takes  as  security  for  a  loan  made  by  it,  a  deed  of 
trust  of  real  estate,  and  subsequently  causes  the  property  to 
be  sold  and  the  proceeds  applied  in  payment  of  its  claim  against 
tlie  borrower,  a  surplus  being  left  in  its  hands,  which  it  uses 
in  its  business  or  in  discharge  of  its  obligations.  If  sued  by 
the  borrower  for  the  amount  of  such  surplus,  could  thie  bank 
successfully  resist  payment  upon  the  ground  that  the  statute 
forbade  it  to  make  a  loan  of  money  on  real  estate  security? 
Common  honesty  requires  this  question  to  be  answered  in  the 
negative.  But  it  could  not  be  so  answered  if  it  be  true  that 
the  Fidelity  Bank  could  use  in  its  business  and  for  its  benefit, 
money  obtained  by  one  of  its  officers  from  another  bank  under 
the  pretence  of  a  loan,  and  be  discharged  from  liability  there- 
for upon  the  ground  that  it  could  not  itself  have  directly  bor- 
rowed from  the  other  bank,  the  money  so  obtained  and  used. 
There  is  nothing  in  the  acts  of  Congress  authorizing  or  per- 
mitting a  national  bank  to  appropriate  and  use  the  money  or 
property  of  others  for  its  benefit  without  liability  for  so  doing. 

"  If  the  Fidelity  Bank  did  not  itself  borrow  this  money 
from  the  Chemical  Bank,  although  the  latter  bank  in  good 
faith  believed  that  it  did,  then  the  crediting  of  the  fonner  Dn 


350  Banks  Borrowing  Money.  [cii.  xxv. 

the  books  of  the  hitter  with  $300,000  was  a  mistake  of  which 
the  Fidelity  Bank  was  not  entitled  in  equity  and  good  con- 
science to  take  advantage,  and  from  which  it  should  not  be  per- 
mitted to  derive  profit  to  the  prejudice  of  the  other  bank.  So, 
if  the  Fidelity  Bank  took  the  benefit  of  that  credit  with  knowl- 
edge of  all  the  facts,  then  its  defence  is  without  excuse  and 
immoral  If  it  innocently  availed  itself  of  that  credit  with- 
out knowledge  of  the  facts,  the  principles  of  natural  justice 
demand  that  it  be  held  accountable  for  the  money  of  another 
bank  which  it  used  in  its  business  without  giving  any  con- 
sideration therefor. 

"  The  fact  that,  after  the  Fidelity  Bank  had  been  credited 
on  the  books  of  the  Chemical  Bank  with  the  $300,000,  Harper 
fraudulently  caused  himself  to  be  credited  on  the  books  of  the 
Fidelity  Bank  with  a  like  sum,  is  a  matter  with  which  the 
Chemical  Bank,  had  no  connection  and  cannot  affect  its  right 
to  demand  a  return  of  the  money  which  went  (as  the  Chemical 
Bank  in  good  faith  supposed  it  would)  into  the  treasury  of 
the  Fidelity  Bank  and  was  by  it  used  in  meeting  its  obliga- 
tions. The  dishonesty  of  Harper  in  his  management  of  the 
affairs  of  the  Fidelity  Bank,  did  not  discharge  that  bank  from 
the  obligation  under  which  it  came,  by  using  in  its  business 
the  money  obtained  by  its  vice-president  under  the  guise  of  a 
loan  to  the  ])ank. 

"  It  is  no  defence  to  the  claim  of  the  Chemical  Bank  to  say 
that  the  directors  of  the  Fidelity  Bank  were  unaware  of  the 
fraudulent  acts  of  Harper.  We  do  not  rest  our  conclusion 
in  the  present  case,  upon  any  question  as  to  diligence  or  want 
of  diligence  upon  the  part  of  the  directors.  We  rest  it  upon 
the  fact  and  the  implied  obligation  arising  therefrom  that  the 
Fidelity  Bank  used  in  its  business  and  for  its  benefit,  the  money 
which  the  Chemical  Bank  placed  to  its  credit  in  consequence 
of  a  loan  negotiated  by  Harper,  who  assumed  to  represent  it. 

Independently  tlierefore  of  any  Cfuestion  as  to  the  scope  of  the 
power  of  a  national  bank  to  borrow  money  to  be  used  in  its 
hnsiness,  we  hold  that  the  Fidelity  banh  became  liable  to  the 
Chemical  Bank  by  using  the  money  obtained  front  the  latter, 
under  the  arrangement  made  by  Harper  in  Jiis  capacity  as  vice- 
president;  consequently,  the  decree  recognizing  the  claim,  of 
the  Chemical  Bank  for  the  amount  of  the  loan  of  March,  1887, 
^ras  right." 


CH.  XXV.]  Baxkixg.  351 

This  is  an  adjudication  of  the  question  to  the  present  time 
and  it  may  again  be  stated  that  the  court  decides  this  case 
independentllj  of  the  question  as  io  the  scope  of  the  power  of  a 
National  Bank  to  horroiv  money  to  he  used  in  its  husiness;  not 
declaring  that  a  national  bank  cannot  borrow  under  certain 
circumstances,  nor  establishing  a  precedent  that  it  may  do 
so  as  an  ordinary  power  and  that*  such  a  power  is  an  incident 
to  the  bank.  The  court  decides  that  the  Fidelity  Bank  became 
liable  because  it  obtained  money  from  the  Chemical  Bank  and 
used  it  in  its  business,  and  that  the  mode  of  obtaining  the 
money,  while  not  regular  upon  its  face,  the  bank  received  it, 
deriving  a  benefit  from  its  use  and  should  therefore  be  re- 
quired to  pay  it  back. 

A  national  bank  may  then  borrow  money  to  an  extent  not  to 
exceed  its  capital  paid  up,  when  duly  authorized  by  its  direc- 
tors, and  this  may  occur  as  an  ordinary  transaction  in  the 
course  of  rediscounting  notes  personally  made  to  it  in  the 
ordinary  course  of  business,  and  such  transactions  may  be  per- 
formed by  the  duly  appointed  and  authorized  officers.  But 
the  borrowing  of  money  by  executing  the  note  of  the  bank  to 
bring  it  within  the  power  of  the  corporation,  the  transaction 
not  being  authorized  by  statute,  nor  a  customary  or  an  ordi- 
nary or  usual  one,  an  exigency  should  exist,  and  the  transaction 
should  he  authorized  hy  the  Directors  at  the  time.  If  not,  it 
should  afterwards  be  ratified  by  them. 

The  rule  that  a  National  Bank  can  borrow  money  for  the  ex- 
press purpose  of  re-loaning  it  again  for  profit  or  speculation, 
seems  too  broad.  Borrowing  money  is  only  an  incidental  power 
not  being  expressly  authorized,  and  therefore  should  not  be  exer- 
cised as  an  express  power. 

The  power  to  horroiv  moneij  is  not  expressed  and  authorized 
hy  the  statute  because  evidently  it  was  considered  a  dangerous 
privilege  and  one  that  ivoidd  he  abused.  And  for  the  further 
reason  the  power  is  not  authorized,  because  it  is  not  considered 
a  part  of  the  ordinary  business  of  banking.  The  transactions 
are  considered  so  much  outside  of  the  general  scope  of  the 
bank's  power,  that  the  officer  acting  in  behalf  of  the  bank 
should,  in  each  case,  have  special  authority. 


352  Banks  Boreowing  Money.  [ch.  xxv. 

§  232.  State  banks  borrowing  money. 

State  banking  corporations  being  creatures  of  the  law,  their 
powers  and  rights  are  derived  from  the  Constitution  and  stat- 
utes of  the  various  States  under  which  they  are  incorporated. 
They  have  only  such  powers  as  are  granted  to  them  by  con- 
stitutional and  legislative  authority,  together  with  such  im- 
plied powers  as  are  necessary  to  put  into  execution  and  use 
those  powers  which  are  expressly  enumerated  in  the  law,  and 
set  forth  in  their  charter. 

A  banking  corporation  is  an  artificial  person  when  incor- 
porated under  the  general  laws  of  a  State,  and  may  be  en- 
dowed "^vith  capacity  to  enter  into  any  obligation  or  contract 
essential  for  its  purpose,  and  for  the  transaction  of  its  ordinary 
affairs.  The  statute  may  give  it  power  to  issue  evidences  of 
debt;  to  borrow  money  to  carry  on  the  business  for  which  it 
was  incorporated,  and  this  right  may  be  used  although  not 
reserved  by  its  charter. 

As  has  been  stated,  banking  corporations  are  not  incor- 
porated for  the  purpose  of  borrowing  money  to  speculate  in 
business.  It  is  their  purpose  rather,  to  receive  on  deposit  and 
to  loan  money.  The  power  of  borrowing  money  by  a  State 
bank,  where  not  specially  authorized  hj  statute  or  by  the  bank's 
charter,  is  governed  by  the  same  law  and  rules  that  govern 
■national  banks  and  should  be  limited  to  cases  of  extreme 
emergency.  Such  an  emergency  can  only  arise  where  funds 
are  required  to  meet  the  urgent  and  unexpected  demands 
made  on  the  bank. 

In  the  case  of  Tuttle  v.  National  Bank  of  the  Republic,  48 
IlL  (App.)  481,  the  court  says: 

"  It  has  been  suggested  that  the  debt  was  incurred  without 
lawful  power  on  the  part  of  the  Edwards  County  Bank,  in 
whose  charter  there  is  no  specific  authority  to  borrow  money; 
but  we  understand  that  is  an  incidental  or  implied  power 
possessed  by  banking  corporations  generally,  unless  especially 
denied  or  restricted. 

"  Of  course  it  is  not  a  part  of  the  continuous  practice  of  any 
bank  to  borrow,  but  it  is  often  necessary  in  the  reasonable 
exercise  of  express  power,  and  hence  it  is  usually  regarded  as 
a  necessary  incident.  Aloise  on  Banks  and  Banking,  section 
63.     Certainly  the  borrowing  must  be  incidental  to  the  usual 


CH.  xxv.J  Banking.  353 

and  legitimate  business  of  a  bank,  otherwise  the  act  is  ultra 
vires;  but  it  is  not  apparent  that  there  was  anything  extraor- 
dinary or  illegitimate  in  this  loan. 

"  Other  questions  suggested  in  the  briefs  need  not  be  dis- 
cussed, as  in  the  view  we  are  inclined  to  take  of  the  case,  the 
foregoing  considerations  require  us  to  affirm  the  judgment." 

The  court  sustains  the  reasonable  rule  that,  the  borrowing 
of  money  is  always  lawful  under  a  power  expressed;  but  where 
the  power  is  used  as  an  incidental  power,  it  must  only  be  used 
in  the  usual  and  legitimate  business  of  banking.  And  this 
business  is  not  the  borrowing  of  money  to  speculate  on. 

The  Supreme  Court  of  the  State  of  Indiana,  in  the  case  of 
James,  Administrator  v.  Rogers,  23  Ind.  451,  in  discussing 
the  power  of  a  banking  corporation  to  issue  promissory  notes, 
says: 

"  No  corporation  has  authority  to  issue  its  promissory  notes, 
except,  as  it  received  such  authority  through  its  charter,  either 
expressly  conferred,  or  as  an  incident  to  the  purpose  for  which 
it  was  created." 

In  Xew  York,  in  the  case  of  Coats  v.  Donnell,  et  al,  94  jS^.  Y. 
168,  the  court,  in  discussing  the  powers  of  a  bank  through  its 
cashier  to  borrow  money,  says: 

"  There  can,  we  apprehend,  be  no  serious  doubt  of  the 
proposition  that  the  agreement  of  June  10,  1878,  was  one 
which  the  cashier  of  the  bank  was  authorized  to  make,  first, 
as  incident  to  his  office  of  cashier,  in  the  absence  of  any  special 
authority  to  enter  into  the  particular  transaction,  and  second, 
by  reason  of  the  by-laws  of  the  bank  defining  the  authority 
of  the  cashier,  which  declares  that  "  he  shall  have  the  imme- 
diate charge  and  supervision  of  the  bank;  shall  attend  to  the 
making  of  loans,  discounts  and  other  active  business  trans- 
actions of  the  bank,  exercising  his  own  judgment  as  to  all  such 
matters,  when  not  otherwise  directed  by  the  finance  committee 
or  board  of  directors."  The  drafts  in  question,  were  drawn 
and  negotiated  for  the  purpose  of  procuring  money  for  the 
use  of  the  bank  and  to  enable  it  to  carry  on  its  legitimate  and 
usual  business.  The  cashier  of  a  bank  is  its  executive  officer, 
and  it  is  well  settled  that  as  incident  to  his  office,  he  has  au- 
thority, implied  from  his  official  designation  as  cashier,  to 
borrow  money  for,  and  to  bind  the  bank  for  its  repayment, 
23 


354  Banks  Borrowing  Money.  [ch,  xxv. 

and  the  assumption  of  such  authority  by  the  cashier,  ^^^ll  con- 
clude the  bank  as  against  third  persons  who  have  no  notice  of 
his  want  of  authority  in  the  particular  transaction,  and  deal 
with  him  upon  the  basis  of  its  existence.^ 

The  negotiation  of  the  drafts  in  this  case  by  the  cashier, 
was  within  his  authority.  The  power  to  borrow  being  ad- 
mitted, the  power  to  secure  the  loan  by  pledge  of  the  property 
or  funds  of  the  bank  (in  the  absence  of  any  statutory  restraint), 
in  the  ordinary  course  of  business,  would  seem  to  be  a  neces- 
sary inference  from  the  primary  powers,  and  this  is  recog- 
nized in  the  cases  to  Avhich  we  have  referred.  The  exigency 
of  the  han^c  ivhen  the  agreement  in  question  was  made,  ren- 
dered it  of  the  utmost  importance  to  its  interests  to  prevent  the 
protest  of  the  drafts,  and  the  authority  of  the  cashier  to  make 
the  agreement  of  June  10,  1878,  giving  to  Donnell,  Laivson  & 
Co.,  a  lien  upon  any  deposit  in  their  hands,  for  their  security, 
if  at  all  doubtful,  irrespective  of  the  by-laws,  was  ample  under 
the  comprehensive  grant  of  authority  thereby  conferred." 

The  authority  to  borrow  money,  while  generally  recognized, 
in  the  opinion  of  the  court  in  the  above  case,  was  authorized 
because  it  was  a  necessity. 

Where  a  run  threatens  the  bank  or  its  drafts  are  liable  to 
go  to  protest,  its  cashier  has  the  power  when  authorized  by 
the  directors  to  temporarily  borrow  money  to  pay  depositors 
or  to  protect  the  credit  of  the  bank.  ■ 

Where  the  statute  of  a  State  restrains  a  banking  corpora- 
tion, prohibiting  it  from  borrowing  money,  its  officers  have  no 
authority,  impliedly  or  otherwise,  to  enter  into  such  contracts. 

A  bank  may,  by  statute,  be  prohibited  from  borroAving 
money  of  another  bank,  payable  at  a  future  day  certain.'* 

Where  the  Constitution  or  the  statute  of  a  State  provides 
that  a  corporation  shall  not  create  a  debt  in  excess  of  its  capital 
paid  up  and  where  a  banking  corporation  derives  all  its  au- 
thority through  incorporation  under  such  general  laws,  the 
directors  have  no  authority  to  create  a  debt  in  excess  of  its 
paid  up  capital. 

3  Curtis   r.   Leavitt,    15   N.   Y.   9,  4  Commonwealth   t\   Bank  of  Mu- 

Barnes  r.  Ontario  Bank,  19  id.  152.       tual  Redemption,  4  Allen  (Mass.)   1. 


CHAPTER  XXVI. 


BANKS  DEALING  IN  STOCKS  AND  BONDS. 

§  233.  National  banks,  power  limited. 

A  national  bank  has  no  power  to  deal  as  an  agent  in  stocks 
and  bonds.  It  is  also  prohibited  from  buying  or  selling  them 
upon  commission.  Such  transactions  and  operations  are  not 
deemed  incidental  to  the  national  banking  business. 

A  national  bank  has  no  charter,  statutory  or  incidental 
powers  to  act  as  a  broker  or  agent  in  the  purchase  of  bonds  and 
stocks. 

Mr.  Justice  Mercur,  in  Bank  of  Allerton  v.  lioch,  89  Pa. 
St.  324,-says:— 

"  It  is  a  well  recognized  law,  that  a  national  bank  is  not, 
by  its  charter,  authorized  to  act  as  a  broker  or  agent  in  the 
purchase  of  bonds  and  stocks.  Its  specified  powers  given  by 
Statute  nor  its  incidental  powers  necessary  to  carry  on  the 
business  of  banking,  do  not  extend  to  the  transaction  of  such 
business.^ 

When  the  paper  on  its  face  shows  the  transaction  not  to  be 
within  the  usual  course  of  business  of  the  bank,  it  is  not  bind- 
ing on  the  bank,  although  signed  by  the  president  thereof, 
as  such  officer.  He  is  the  executive  agent  of  the  board  of  di- 
rectors within  the  ordinary  business  of  the  bank,  but  cannot 
bind  it  by  a  contract  outside  thereof,  without  special  authority. 
I  do  not  understand  these  general  rules  to  be  denied," 

The  power  to  deal  in  stocks  is  not  expressly  prohibited  by  the 
Statute,  but  such  a  prohibition  is  implied  from  the  failure 
to  grant  the  power. 

The  Supreme  Court  of  the  United  States,  in  the  case  of  First 
National  Bank  of  Charlotte  v.  National  Exchange  Bank  of 
Baltimore,  92  U.  S.  122,  holds  that  a  national  bank  may  accept 
stock  in  payment  and  satisfaction  of  a  doubtful  debt,  with  n 
view  to  a  subsequent  sale  or  conversion  into  money  of  said 
stocks  so  as  to  make  good  or  reduce  an  anticipated  loss. 

1  First  National  Bank  of  Cliar-  S.)  122;  Fowler  r.  Scully,  22  P.  F. 
lotte  I'.  Exchange  Bank,  2  Otto   (U.       Smith,  456. 

[355] 


356  Banks  De.vxing  ix  Stocxs  and  Bonds.        [ch.  xxvi. 

The  Court  savs: 

''  Dealing  in  stocks  is  not  expressly  prohibited ;  but  such 
a  proliibition  is  implied  from  the  failure  to  grant  the  power. 
In  the  honest  exercise  of  the  power  to  compromise  a  doubtful 
debt  owing  to  a  bank,  it  can  hardly  be  doubted  that  stocks 
may  be  accepted  in  pa^mient  and  satisfaction,  Avith  a  view  to 
their  subsequent  sale  or  conversion  into  money  so  as  to  make 
good  or  reduce  an  anticipated  loss.  Such  a  transaction  would 
not  amount  to  a  dealing  in  stocks.  It  was,  in  eilect,  so  decided 
in  Fleckner  v.  Bank  of  the  United  States,  8  Wheat.  351,  where 
it  was  held  that  a  proliibition  against  trading  and  dealing  was 
nothing  more  than  a  prohibition  against  engaging  in  the  ordi- 
nary business  of  buying  and  selling  for  profit,  and  did  not  in- 
clude purchases  resulting  from  ordinary  banking  transactions. 

For  this  reason,  among  others,  the  acceptance  of  an  indorsed 
note  in  payment  of  a  debt  due,  was  decided  not  to  be  a  "  deal- 
ing ''  in  notes.  Of  course,  all  such  transactions  must  be  com- 
promises in  good  faith,  and  not  mere  cloaks  or  devices  to  cover 
unauthorized  practices." 

A  National  haul-  has  incidental  poii'er  to  loan  money  on 
'personal  security  and  accept  stock  of  another  corporation  as 
collateral,  and  thus  becomes  subject  to  liability  as  other  stock- 
holders. 

In  the  further  discussion  of  this  subject,  the  Supreme  Court 
of  the  United  States,  in  California  Bank  v.  Kennedy,  says : 

"  The  Federal  questions  which  therefor  arise  on  the  record 
may  be  thus  stated: 

"1st.  Do  the  Statutes  of  the  United  States,  Rev.  Stat.  p.  5136, 
et  secj.,  relating  to  the  organization  and  powers  of  national 
banks,  prohibit  them  from  purchasing  or  subscribing  to  the 
stock  of  another  corporation  ? 

"2d.  If  a  national  bank  does  not  possess  such  power,  can  the 
want  of  authority  be  urged  by  the  bank  to  defeat  an  attempt 
to  enforce  against  it  the  liability  of  a  stockholder  ? 

"  As  to  the  first  question. — It  is  settled  that  the  United  States 
Statutes  relative  to  national  banks,  constitute  the  measure  of 
the  authority  of  such  corporations,  and  that  they  cannot  right- 
fully exercise  any  powers  except  those  expressly  granted,  or 


en.  XXVI.]  Banking.  357 

which  are  incidental  to  carrying  on  the  business'  for  which 
they  are  established.^ 

"  Xo  express  power  to  acqnire  tlie  stock  of  another  corpora- 
tion is  conferred  upon  a  national  bank,  but  it  has  been  held  that, 
as  incidental  to  the  power  to  loan  money  on  personal  security, 
a  bank  may  in  the  usual  course  of  doing  such  business,  accept 
stock  of  another  corporation  as  collateral,  and  by  the  enforce- 
ment of  its  rights  as  pledgee,  it  may  become  the  owner  of  the 
collateral  and  be  subject  to  liability  as  other  stockholders.^ 

"  So  also,  a  national  bank  may  be  conceded  to  possess  the 
incidental  power  of  accepting  in  good  faith,  stock  of  another 
corporation  as  securit^^  for  a  previous  indebtedness.  It  is 
clear,  however,  that  a  national  bank  does  not  possess  the  power 
to  deal  in  stocks.  The  prohibition  is  implied  from  the  failure 
to  grant  the  power." 

Where  a  national  bank  takes  by  purchase,  stock  in  another 
corporation,  the  law  is  settled  that  the  corporation  may  plead 
its  lack  of  power.     The  act  is  an  ultra  vires  act.^ 

The  Revised  Statutes  of  the  United  States,  §  5201,  provides 
that  national  associations  must  not  hold  their  own  stock,  taken 
as  security  for  a  debt  beyond  a  period  of  six  months. 

The  Court  says,  in  discussing  this  question,  and  in  analyzing 
said  section: 

"  So,  while  a  bank .  is  expressly  prohibited  from  loaning 
money  upon,  or  purchasing  its  own  stock,  special  authority 
is  given  for  the  acceptance  of  its  shares  as  security  for  and 
in  payment  of  debts  previously  contracted  in  good  faith ;  but 
all  shares  purchased  under  this  power  must  be  again  sold  or 
disposed  of  at  private  or  public  sale,  within  six  months  from 
the  time  they  are  acquired." 

The  law  is  well  settled  that  a  national  bank  has  power  to 
take  evidences  of  debt  from  its  customers  and  other  persons, 

2  Logan  Co.  Bank  v.  Tovvnsend,  I  ;  Pittsburgh,  Cincinnati,  etc..  Rail- 
139  U.  S.  07,  73.  way  v.  Keokuk  &  Hamilton  Bridge 

3  National  Bank  v.  Case,  99  U.  S.  Co.,  131  U.  S.  371;  Central  Transp. 
628.  Co.  r.  Pullman's  Car  Co.,  139  U.  S. 

4  California  Bank  v.  Kennedy,  167  24;  St.  Louis,  etc..  Railroad  t;.  Terre 
U.  S.  3i*2 ;  Thomas  v.  Railroad  Co.,  Haute  &  Indianapolis  Railroad,  145 
101  U.  S.  71;  Pennsylvania  Railroad  U.  S.  393;  Union  Pacific  Railway  v. 
V.  St.  Louis,  Alton,  etc..  Railroad,  Chicago,  etc..  Railway,  163  U."  S. 
118  U.  S.  290;  Oregon  Rv.  &  Nav.  ,564;  McCormick  v.  'Market  Nat. 
Co.  i\  Oregonian  Ry.  Go.,*130  U.  S.  Bank,  165  U.  S.  538. 


358         Ba^-ks  Dealing  ix  Stocks  axd  Bon^ds.        [en.  xxvi. 

and  send  them  to  distant  places  for  collection  and  pay  over 
the  proceeds  when  collected  to  the  person  entitled  thereto ;  re- 
taining or  receiving,  in  some  form,  a  compensation  for  its 
services  rendered. 

The  bank,  therefore,  may  enter  into  an  agreement  with  a 
customer  to  exchange  for  him,  non-registered  United  States 
bonds  for  registered  bonds. 

The  Court  says: 

"  The  exchange  of  the  bond  wonld,  in  a  broad  sense,  have 
been  a  negotiation  of  them.  It  would,  as  commonly  under- 
stood have  been  a  legitimate  business  for  a  bank  to  do.  We 
may  take  judicial  notice  of  the  fact  that  government  bonds 
are  usually  bought  and  sold  through  banks;  and  that  all  the 
transactions  in  reference  to  them  with  the  government,  are 
usually  comducted  through  banks  and  persons  doing  banking 
business.  They  are  moneyed  securities,  and  the  collection  or 
exchange  of  them,  is  a  financial  transaction  in  no  sense  foreign 
to  the  business  of  banking."^ 

A  national  bank  can  properly  and  legally  engage  in  the 
business  of  dealing  in  and  exchanging  government  securities.^ 

The  State  courts  universally  endorse  the  principle  that  na- 
tional banks  have  the  incidental  power  to  deal  in  government 
bonds,  receiving  them  on  deposit,  being  of  one  class,  and  ex- 
changing them  for  those  of  another  class. 

The  Supreme  Court,  in  the  case  of  Leach  v.  Hale,  31  Iowa 
69,  says: 

"  We  think  the  bank,  under  .the  provisions  of  the  Act  above 
cited,  was  clothed  with  authority  to  pursue  either  course  in 
order  to  convert  the  bonds  of  its  customers." 

§  234.  Liability  of  national  bank  holding  stock  as  security. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
Xational  Bank  v.  Case,  99  U.  S.  628,  states  the  law  as  es- 
tablished, "  that  one  to  whom  stock  has  been  transferred  in 
pledge  or  as  collateral  security  for  money  loaned,  and  who  ap- 
pears on  the  books  of  the  corporation  as  the  owner  of  the  stock, 
is  liable  as  stockholder  for  the  benefit  of  creditors.^' 

SYerkes  v.  National  Bank.  69  N.  QCornolius    "M.   Van   T-*uvon,   Re- 

Y.  382.  spondent,  r.  TIip  First  Nat.  Bank  of 

Kingston,  Appellant,  54  N.  Y.  671. 


CH.  XXVI.]  Banking.  359 

§  235.  Commercial  and  savings  banks  dealing  in  stocks  and 
bonds. 

All  commercial  and  savings  banks  organized  under  State 
laws  have  the  incidental  power  to  deal  in  stocks,  bonds,  etc., 
unless  specifically  restricted  bv  the  Statute.  They  maj  pur- 
chase stocks  of  another  corporation,  buy  and  sell  the  same 
as  individuals  may  do.  But  where  the  Statute  of  a  State  pro- 
hibits a  banking  corporation  from  investing  in  stocks  or  bonds 
of  a  particular  class,  they  have  the  incidental  and  implied 
power,  whether  authorized  by  law  or  not,  to  deal  in  all  other 
stocks  and  bonds ;  to  buy  and  sell  notes  and  securities  of  like 
nature. 

The  right  of  a  State  banking  corporation  to  deal  in  stocks, 
directly  or  indirectly,  in  buying  or  selling,  where  the  power 
is  not  restricted  by  Statute,  is  held  to  be  a  common-law  right. 
It  is  a  power  incident  to  every  corporation.''^ 

The  power  to  buy  and  sell  stocks  and  bonds  should  not  be 
construed  as  a  right  to  traffic  in  them.  A  bank  may  buy 
such  securities  as  an  investment  for  the  purpose  of  investing 
the  surplus  fund  it  may  possess.  To  traffic  in  such  security, 
that  is,  buy  and  sell  with  a  view  to  an  anticipated  advance  in 
price,  is  a  violation  of  the  principle  of  legitimate  banking.  A 
bank  has  no  authority,  incidental  or  otherwise,  to  speculate  in 
securities.  Its  investments  and  dealings  should  always  be 
made  with  a  view  to  profit,  safety,  and  security. 

Where  a  Statute  does  not  intervene  and  prohibit  a  bank 
from  taking  its  o^vn  stock  as  security  for  a  debt  contracted, 
it  may  take  and  hold  the  same  as  securitv  for  such  debt ;  and 
on  failure  to  pay,  it  may  proceed  to  sell  the  stock  and  may 
buy  the  same,  and  after  purchase,  sell  the  stock  and  take  the 
purchaser's  note  in  payment  therefor. 

7  Farmers  and  Mechanics'  Bank  V.   Champlain  Transp.  Co.,  18  Vt.  131. 


CHAPTER  XXVII. 


BANK  DISCOUNTS. 

§  236.  Power  to  make,  vested  in  directors. 

The  power  to  discount  notes  is  one  which  is  vested  exclusively 
in  the  board  of  directors. 

Tt  is  a  power  which  cannot  be  delegated  by  them  and  given 
over  without  reserve  to  an  officer  or  agent  of  the  bank.  The 
execution  or  the  doing  of  the  act  may  be  performed  by  an 
officer  of  the  bank,  but  the  authority  and  direction  arises  and 
comes  from  the  board  of  directors. 

The  board  of  directors,  it  is  held,  may,  by  a  single  resolution, 
passed  by  them,  give  the  power  to  a  financial  officer  of  the 
bank,  with  general  authority  to  make  discounts. 

Again  it  is  held,  that  such  a  resolution  must  designate  the 
person  or  persons  to  whom  the  loans  are  made.  As  all  loans 
must  be  made  by  direction  and  under  the  authority  of  the  board 
of  directors,  it  is  questionable  whether  a  general  resolution  di- 
recting a  financial  agent  of  a  bank  to  make  loans,  would  give 
him  the  power  to  do  so. 

This  power,  however,  and  privilege  is  by  a  very  great  num- 
ber of  the  banks,  assumed  by  the  president  or  cashier,  and  the 
business  of  making  discounts  is  entirely  left  with  them  without 
any  direction  or  authority  whatever. 

Banking  corporations,  both  State  and  national,  are  clothed 
v:ith  the  power  to  rediscount  bills  receivable.  A  rediscount  is 
the  taking  of  a  note  which  has  been  duly  executed  to  the  bank, 
calling  for  a  certain  sum  of  money,  payable  at  a  future  date, 
which  note  is  by  the  bank  indorsed  either  with  or  without 
recourse  to  another  bank  or  person. 

A  rediscount  by  a  bank  of  its  bills  receivable,  though  i( 
indorses  the  same  by  a  general  indorsement  only  becomes  con- 
tingently liable  for  the  payment,  and  it  is  not  a  borrowing  of 
money  by  the  bank;  but  has  more  the  characteristics  of  a  sale. 
The  right  of  a  bank  to  discount  and  "  re-discount "  paper 
cannot  be  questioned. 

[360] 


cii.  XXVII.]  Banking.  361 

The  Federal  Court,  in  the  case  of  the  United  States  jSTational 
Bank  v.  First  National  Bank  of  Little  Rock,  79  Fed.  Rep.  296, 
holds  that  an  officer  of  a  bank  has  the  authority  to  indorse 
negotiable  paper  owned  by  the  bank;  and  that  such  transac- 
tions come  within  the  ordinary  transaction  of  the  business  of 
the  bank.  Such  transactions  are  of  hourly  occurrence  in  all 
banks  located  in  large  business  centers. 

The  court  says: 

"  There  is  an  obvious  difference  between  a  transaction  where 
a  bank  goes  into  the  market  as  a  borrower,  giving  its  own  notes, 
bills  or  other  obligations  for  the  money  borrowed,  and  a  trans- 
action where  it  disposes  of  the  notes  and  bills  of  third  parties 
which  it  has  previously  discounted.  In  the  former  case,  it 
becomes  primarily  bound;  it  is  the  principal  debtor;  while,  in 
the  latter  case,  if  it  indorses  the  paper,  it  only  incurs  a  co7i- 
iingent  liability  which  may  never  ripen  into  an  absolute  obliga- 
tion to  pay.  The  latter  transaction  has  more,  if  not  all  of  the 
characteristics  of  a  sale,  and  it  is  generally  regarded  as  a  sale 
whereby  assets  of  a  certain  kind  are  converted  into  cash,  *  *  * 
but  we  can  see  no  propriety  in  characterizing  the  transaction 
as  a  borrowing  of  money,  when  a  person  or  corporation  sella 
commercial  paper  made  by  third  parties,  which  they  happen  to 
own." 

The  court,  in  further  discussing  this  subject,  says: 

"  We  think  the  weight  of  reason  and  authority  is  in  favor  of 
the  view  that  it  is  within  the  scope  of  the  implied  power  of  the 
I>resident  of  a  bank  to  indorse  negotiable  paper  in  the  ordinary 
transaction  of  the  bank's  business;  and  that  a  special  authority 
to  that  end  need  not  be  conferred  by  the  board  of  directors. 
Such  implied  power  is  generally  conceded  to  the  bank  cashier, 
and  we  know  of  no  sufficient  reason  why  the  implied  power  of 
the  chief  executive  officer  of  a  bank  should  be  more  limited  in 
this  respect  than  those  of  its  cashier."  ^ 

The  rule  laid  down  and  announced  by  the  court,  in  the  case 
of  the  Western  National  Bank  v.  Armstrong,  152  U.  S.  346, 
that  the  president  or  cashier  of  a  national  bank  is  devoid  of 

1  Bank  v.  Smith,  23  C.  C.  A.  80,  Cooke  r.  Bank,  52  N.  Y.  96;  Bank 

77  Fed.  129,  135;  Fleckner  v.  Bank,  v.  Wheeler.  21   Ind.  90;   Merchants' 

8  Wheat.   338,   360;    Wild  r.   Bank,  Bank  v.  State  Bank,   10  Wall.  604, 

3  Mason.  505.  Fed.  Cas.  No.  17.646;  650. 
Bank  v.  Perkins,  29  N.  Y.  554,  569; 


362  Baxk  Discounts.  [ch.  xxvii. 

power  to  borrow  money  or  re-discount  notes  unless  duly 
authorized  to  do  so  by  the  board  of  directors,  it  is  claimed 
does  not  apply  where  a  general  usage  is  sho"v\Ti  between  cor- 
respondent banks. 

This  rule  can  be  supported  on  no  other  theory  than  that  the 
usage  and  custom  was  condoned  and  acquiesced  in  by  the 
directors. 

It  is  interesting  in  this  connection,  to  read  the  opinion  of 
the  court  in  the  case  cited,  namely  the  Western  Xational  Bank 
V.  Armstrong,  and  to  note  the  close  distinctions  made  by  the 
court  in  the  application  of  the  rule  between  re-discounts  and 
borrowing  money  by  a  bank. 

"While  the  practice  of  discounting  bills  receivable  is  lawful 
and  comes  Avithin  the  scope  and  authority,  impliedly  and  inci- 
dentally given  to  bank  officers,  and  is  a  usage  which  may  be 
recognized  between  banks  in  certain  localities,  and  is  daily 
practiced,  it  may  be  carried  to  a  dangerous  degree  and  extent. 
It  should  be  guarded  with  a  degree  of  conservatism  and  there- 
fore the  wisdom  of  the  law  is  seen  in  making  of  discounts  an 
inalienable  function  and  power  of  the  directors. 


CHAPTER  XXVIII. 


DEALING  IN  COMMEECIAL  PAPER. 

§  237.  Distinction  between  "  discount  "  and  "  purchasing." 

It  is  the  principal  business  of  a  bank  to  acquire  commercial 
paper.  The  law  does  not  require,  and  it  is  not  held  that  all  its 
promissory  notes  should  be  drawn  payable  and  executed  di- 
rectly to  the  bank.  The  greatest  portion  of  the  bank's  business 
in  some  localities,  is  in  the  discounting  of  negotiable  notes. 
The  statutes  relating  to  national  banks,  expressly  confer  to 
them,  the  power, "^0/  discounting  and  negotiating  promissory 
notes." 

Discounting  notes  is  not  held  to  be  "purchasing."  The 
subject  has  frequently  been  before  the  courts  and  it  is  held  that 
there  is  a  distinction  between  "  discounting  "  and  "  purchasing 
outright." 

In  the  case  of  the  First  Xational  Bank  of  Rochester  v. 
Pierson,  24  Minn.  140,  the  court  holds  that,  where  it  was  shown 
by  the  evidence  that  the  bank  was  the  "  purchaser  "  of  the 
note  in  question,  it  was  an  act  clearly  in  violation  of  the 
statute. 

The  court,  in  discussing  the  question,  says: 

"  As  a  conclusion  of  law,  etc.,  etc.,  the  plaintiff,  a  national 
bank  corporation,  had  no  right  or  authority  to  purchase  or 
traffic  in  promissory  notes  as  "  choses  in  actions  "  and  did  not 
in  law  acquire  by  the  supposed  purchase,  any  title  to  the  notes 
in  question,  and  cannot  recover  upon  it  in  this  action." 

This  is  a  strict  construction  of  the  statute  as  it  does  not,  in 
expressed  words,  directly  authorize  national  banks  to  purchase 
promissory  notes. 

It  is  also  held  in  the  Maryland  case,  Jessie  Lazear  v.  The 
Union  Bank  of  Maryland,  52  Md.  78,  that  a  national  bank  is 
forbidden  this  power.  The  court  says  that  there  is  a  plain  dis- 
tinction between  the  language  of  the  statute  between  "  pur- 
chasing "  and  "  discounting"  commercial  paper;  that  while  the 
power  is  specifically  recognized  and  given  to  a  national  bank 
to  discount  notes,  drafts,  bills  of  exchange,  etc.,  the  power  is 

[363] 


364:  Dealing  in  Commercial  Paper.       [ch.  xxviii. 

conspicuously  withheld  authorizing  national  banks  the  power 
to  "  purchase  "  promissory  notes. 

The  court  here  also  construes  the  statute  strictly  upon  the 
ground  that  there  is  no  express  provisions  or  power  authorized 
hj  the  law,  holding  that  there  is  an  important  distinction 
between  ''  purchasing  "  and  "  discounting  "  notes. 

The  question  is  of  sufficient  importance  to  give  other  authori- 
ties. The  Supreme  Court  of  the  State  of  Illinois,  in  the  case 
of  the  First  Xational  Bank  of  Greenville  v.  Asa  J.  Sherburne, 
14  111.  App.  56G,  has  so  clearly  presented  the  question  with 
such  sound  reasoning,  holding  that  a  Xational  bank  tnay  law- 
fully purchase  a  note  by  the  way  of  discount. 

We  cite  from  the  opinion  of  the  court: 

"  The  power  given  to  national  banks  as  respects  the  matters 
here  in  issue,  is  '  to  carry  on  the  business  of  banking  by  dis- 
counting and  negotiating  promissory  notes,  drafts,  bills  of  ex- 
change and  other  evidences  of  debt.'  R.  S.  U.  S.,  §  5136.  It 
is  urged  the  transaction  involved  in  this  case  was  a  purchase  by 
appellant  of  the  note,  that  a  national  bank  has  no  power  to 
make  such  purchase,  and  that  the  bank  took  no  title  thereto 
and  cannot  recover  thereon.  The  cases  of  Lazear  v.  National 
Union  Bank  of  Maryland,  52  Md.  78;  F.  &  M.  Bank  v.  Bald- 
^Yil\,  23  Minn.  198,  and  the  First  Xational  Bank  v.  Pierson,  24 
Minn.  140,  are  cited  as  authorities  in  that  behalf.  As  we 
understand  the  facts  of  the  case  bearing  upon  the  question 
under  consideration,  the  note  was  executed  by  appellee  and  pay- 
able on  the  first  of  September,  1882,  to  the  order  of  one,  E.  B. 
Wise,  and  was  by  said  Wise  on  the  29th  of  June,  1882,  and 
before  maturity,  indorsed  in  blank  and  delivered  for  value 
through  its  cashier  to  the  appellant  bank.  No  point  was  made 
in  the  court  below  as  to  the  title  of  appellant,  and  the  evidence 
does  not  disclose  what  discount  was  made  upon  the  note. 

"  The  argument  made  here,  is  based  upon  the  statement  of 
the  cashier,  that  he  purchased  the  note  from  AVise  and  that  it 
was  bought  in  the  usual  course  of  business  as  he  bought  other 
notes.  It  may  be  questionable  whether  the  words  used  in  the 
statute  *  by  negotiating  '  are  broad  enough  to  include  that  which 
was  here  done  by  the  bank;  and  yet  according  to  the  lexi- 
cographers, the  word  '  negotiate  '  means  not  only  '  to  transfer,' 
'  to  sell,'  '  to  pass  '  but  '  to  procure  by  mutual  intercourse  and 


CH.  XXVIII.]  Baxkixg.  365 

agreement  with  another.'     It  appears  the  note  was  taken  by  a 
national  bank  and  '  in  the  nsual  course  of  business.' 

"  Admitting-  the  bank  had  no  power  to  become  vested  with 
the  legal  title  to  the  note  otherwise  than  by  '  discounting  '  it  — 
the  fair  and  reasonable  presumption,  from  the  fact  it  was  taken 
i]i  the  usual  course  of  business  of  a  national  bank,  would  be 
tliat  it  was  discounted.  The  fact  the  cashier  in  stating  the 
transaction  uses  the  words  '  purchased  '  and  '  bought/  we  do  not 
deem  of  much  importance. 

"  In  Atlantic  State  Bank  v.  Savery,  82  X.  Y.  291,  a  similar 
statute  was  under  consideration  and  the  word  '  bought '  was 
used  by  the  witness  and  a  written  memorandum  of  the  transfer 
was  made  and  delivered  at  the  time  in  which  the  word  '  sold ' 
was  used,  and  yet  it  was  held  it  was  a  discount  and  the  title  to 
the  note  was  valid.  In  the  present  case,  the  paper  was  pro- 
cured from  AVise,  who  was  both  payee  and  indorser,  and  was 
transferred  by  an  indorsement  imposing  the  ordinary  liability 
upon  the  indorser. 

"  Although  in  form  and  in  common  parlance  it  was  a  pur- 
chase of  the  note,  yet,  in  substance,  it  was  a  loan  by  way  of 
discount  made  by  the  bank  to  "Wise;  and  the  relation  of  debtor 
and  creditor  as  between  them  was  created. 

"  Discount  is  the  difference  between  the  price  and  amount  of 
the  debt,  the  evidence  of  which  is  transferred;  and  the  char- 
acter of  the  paper  with  reference  to  its  being  business  or 
accommodation  paper  is  immaterial  as  respects  the  transaction 
being  properly  denominated  a  loan.^ 

"  Had  the  transfer  been  by  delivery  only,  or  by  an  indorse- 
ment without  recourse,  then,  probably  it  might  be  regarded  as 
an  absolute  purchase  of  the  note. 

"  This  is  sufficient  upon  this  point  for  the  purposes  of  the 
present  controversy.  We  are  inclined,  however,  in  the  absence 
of  Federal  or  binding  authority  as  to  the  construction  to  be 
given  this  subject,  5136  R  S.  U.  S.,  to  place  our  decision  upon 
higher  ground.  A  purchase  may  be  made  by  way  of  discount 
equally  as  well  as  a  loan  may  be  made  by  way  of  discount. 
Discount  means  ex  vi  termini,  a  deduction  or  drawback  made 
upon  advances  or  loans  of  money  upon  negotiable  paper  or 

1  National   Bank   r.   Jolinson,    1041'.  S.  271. 


366  Dealing  ix  Commerclvl  Paper.       [cii.  xxviii. 

ether  evidences  of  debt,  payable  at  a  future  day,  which  are 
transferred  to  the  bank.  Fleckner  v.  Bank  of  United  States, 
8  "Wheat.  338,  350;  and  in  the  same  case  Mr.  Justice  Story 
speaks  of  '  a  purchase  by  way  of  discount.'  If  the  party  deal- 
ing with  the  bank  assumes  a  responsibility,  it  is  a  loan;  if  he 
does  not,  it  is  an  advance  made  to  him  in  consideraton  of  the 
transfer  ^Aathout  recourse  or  by  delivery.  If  a  greater  rate  of 
discount  is  taken  or  reserved  than  the  Bank  Act  allows,  then 
the  bank  is  liable  to  the  penalties  imposed  by  the  act,  but  the 
title  of  the  bank  to  the  paper  is  not  affected.  The  decision  of 
the  Xew  York  Court  of  Appeals  in  Govery's  Case,  82  X.  Y. 
291,  is  much  in  point.  See,  also,  the  able  discussion  of  the 
subject  in  the  dissenting  opinion  in  Lazear's  Case,  52  Md.  126. 
TTe  think  the  logic  of  the  opinion  of  the  Supreme  Court  of  the 
United  States  in  Xational  Bank  v.  Johnson,  10-1  U.  S.  271, 
leads  to  the  same  conclusion." 

The  power  of  a  national  bank  to  buy  checks  drawn  by  indi- 
viduals on  other  banks  has  not  been  denied.^ 

The  doctrine  is  settled  that  a  draft  for  a  sum  stated  drawn 
by  a  seller  against  a  buyer  in  favor  of  a  national  bank,  by 
whom  it  is  discounted  or  purchased  with  the  bill  of  lading 
attached,  passes  title  to  the  goods  therein  mentioned  to  the 
bank.3 

The  power  of  a  national  bank  to  purchase  notes,  not  being 
expressly  conferred  by  statute,  is,  therefore,  by  some  author- 
ities, denied. 

The  question  is  discussed  at  length  in  the  case  of  Merchants' 
Xational  Bank  of  St.  Paul  v.  Peter  Hansen,  33  Minn.  40. 
The  facts  stated  in  the  above  case  are  given  in  the  opinion  of 
the  court,  a  portion  of  which  is  here  cited. 

The  court  says : 

"  One,  Luce,  was  doing  business  individually,  under  the  name 
of  '  The  Bank  of  Breckinbridge.'  He  held  several  notes  pay- 
able to  himself  by  name,  or  by  the  name  of  the  '  Bank  of 
Breckinbridge.'  He  indorsed  these  notes,  '  Pay  G.  C  Power, 
or  order,  for  account,  and  credit  Bank  of  Breckinbridge. 
(Signed)  E.  E.  Luce.'  —  and  sent  them  to  the  plaintiff  bank 

2  First  Nat.  Bank  of  Rochester  v.  3  Union  Xat.   Bank   r.  Rowan,  23 

Horatio  Harris  et  al.,  108  ilass.  514.       S.  C.  3.39. 


CH.  XXVIII.]  Bankixg.  367 

Avith  a  letter  requesting  the  latter  to  discount  them,  and  place 
the  proceeds  to  his  credit.  The  plaintiff  retained  the  notes, 
crediting  the  Bank  of  Breckinbridge  with  their  amount,  less* 
interest  to  the  time  of  maturity,  and  advised  Luce  of  their 
action.  The  sum  so  credited  was  afterward  paid.  Before  the 
maturity  of  the  notes,  the  plaintiff  sent  the  notes  to  the  Bank  of 
Breckinbridge  for  collection  having  indorsed  them  as  follows: 

''  '  Pay  Bank  of  Breckinbridge,  or  order,  for  collection, 
account  of  Merchants'  Xational  Bank,  St.  Paul. 

F.  A.  Seymour,  Cashier.' 

'^  Luce,  receiving  the  notes,  transferred  them  by  indorsement 
before  their  maturity,  with  the  indorsements  uncancelled  upon 
ihem,  to  the  defendant  in  payment  of  a  precedent  debt.  The 
defendant  noticed  the  indorsements  when  he  received  the  notes, 
but  asked  no  questions,  and  appears  to  have  had  no  notice  of 
the  plaintiff's  rights  respecting  the  notes,  except  as  it  is  to  be 
inferred  from  what  has  been  stated.  The  defendant  having 
refused  to  restore  the  notes  to  the  plaintiff,  this  action  is  prose- 
cuted to  recover  their  value. 

"  In  First  ISTational  Bank  of  Kochester  v.  Pierson,  24  Minn. 
140,  this  court  decided  that  national  banks  were  not  authorized 
to  purchase  promissory  notes,  in  the  ordinary  sense  of  the  word 
'  purchase,'  the  transaction  not  being  a  discounting  of  the  paper 
or  a  lending  of  money  upon  the  credit  of  it ;  and  the  defense  of 
idb^a  vires  was  sustained  in  an  action  upon  a  note  so  purchased. 
Since  that  decision  was  rendered,  the  act  of  Congress  upon 
which  it  was  based  has  come  before  the  Supreme  Court  of  the 
United  States  for  construction.* 

The  decisions  of  that  court  are  to  the  effect  that  the  enforce- 
ment in  favor  of  a  bank  of  securities  upon  real  property,  which 
securities  the  bank  had  acquired  without  authority,  could  not 
be  opposed  by  the  plea  of  ultra  vires,  but  that  it  was  intended 
hj  Congress  that  the  consequences  of  such  violations  of  law 
should  be  only  such  as  might  be  imposed  in  proceedings  insti- 
tuted against  the  bank  by  the  government.  This  construction 
of  the  law  of  Congress  is  authoritative,  and  it  is  our  duty  to 
follow  it.     In  doing  so,  we  necessarily  overrule  Bank  v.  Pier- 

4Xational  Bank  ;;.  Matthews,  98  U.  S.  621;  National  Bank  v.  Whit- 
ney, 103  U.  S.  99. 


368  Dealing  in  Commekcial  Paper.       [cii.  xxviii. 

son,  supra,  as  to  the  effect  of  tlie  plea  of  ultra  vires  in  such 
cases. 

"  Applying  the  principle  established  l)v  these  decisions  to 
the  case  before  us,  it  is  not  material  whether  the  transaction 
through  which  the  plaintiff  acquired  the  notes  was  a  purchase 
of  the  notes  in  the  ordinary  sense  of  the  word  '  purchase,'  or  a 
discount  of  the  notes  as  a  loan  to  the  payee.  In  either  case 
the  plaintiff's  right  as  against  this  defendant  would  be  the  same. 
That  the  plaintiff  acquired  the  notes  either  as  its  absolute  prop- 
erty or  as  security  is  conclusively  shown  by  the  evidence.  The 
defendant  claims  that  the  case  shows  a  simple  purchase  of  the 
notes  by  the  plaintiff.  This  may  be  conceded  for  the  purpose 
of  the  case.  The  special  verdict  of  the  jury,  to  the  effect  that 
the  plaintiff  discounted  the  notes  for  the  benefit  of  the  Bank  of 
Breckinbridge,  is  not  inconsistent  with  their  general  verdict 
in  favor  of  the  plaintiff,  and  may  be  disregarded  without  affect- 
ing the  result.  The  plaintiff  was  entitled  to  recover,  unless 
the  defendant  is  to  be  deemed  as  having  taken  the  notes  unaf- 
fected with  notice  of  the  plaintiff's  rights.  The  court  declared 
the  indorsements  sufficient  to  charge  the  defendant  with  notice 
of  whatever  interest  the  Merchants'  National  Bank  had  in  the 
notes,  and  refused  to  submit  the  question  of  the  defendant's 
bona  fides  to  the  jury.  Whether  this  was  error  is  the  only 
remaining  question  to  be  considered." 

The  power  of  national  banks  to  purchase  notes,  not  being 
expressly  conferred  by  statute,  the  incidental  right  is  denied. 
The  question  has  not  been  fully  settled  by  the  Supreme  Court 
of  the  United  States;  but  the  doctrine  that  a  national  bank  may 
"purchase  a  promissory  note  by  the  way  of  discount,"  has  been 
held  lawful  by  the  Illinois  Appellate  Court. 

There  does  not  seem  to  be  any  good  legal  reason  why  a 
national  bank  should  be  excluded  from  purchasing  outright, 
promissory  notes.  While  the  statute  does  not,  in  words,  au- 
thorize it,  it  does  not  directly  or  expressly  deny  the  power. 
I'he  arguments  presented  by  the  various  courts,  holding  that 
it  is  a  violation  of  the  statute  and  that  banks  have  no  power 
incidentally,  place  their  conclusion  upon  the  proposition,  that, 
if  not  a])ecially  authorized,  the  privilege  is  denied. 

The  principal  business  of  a  bank  is  in  the  loaning  of  its  money 
by  taking  ])romissorv  notes.      If  the  interest  laws  of  the  State 


en.  XXVIII.]  Banking.  369 

have  not  been  violated  by  the  terms  of  the  note  and  the  note 
is  negotiable,  it  is  difficult  to  see  upon  what  reasoning  the 
courts  hold  that  the  bank  has  no  incidental  power.  While  the 
bank's  authority  is  controlled  by  the  statutes,  which  are  the 
expressed  provisions  of  the  law  regulating  its  acts,  by  the  very 
nature  of  its  business  it  has  full  power  to  carry  into  execution 
every  lawful  transaction  coming  under  its  privileges  and  inci- 
dent to  banking,  though  the  pri\'ilege  is  not  specifically  ex- 
pressed in  the  statutes. 

The  bank  loaning  money  directly  to  ''  A."  upon  his  promis- 
sory note  is  lawful. 

The  bank  buying  a  note  from  "  A."  executed  to  him  by  "  B." 
is  claimed  to  be  unla^vful.  Upon  just  what  principle  of  reason- 
ing it  is  not  clearly  understood ;  both  are  only  a  mode  of  loaning 
money.  The  statute  authorizes  a  bank  to  accept  checks  assigmed 
10  it  by  the  payee  when  drawn  on  another  bank,  and  it  may  law- 
fully do  so,  though  the  checks  be  post-dated.  This  is  purchas- 
ing from  "  B,"  a  check  drawn  by  "A."  The  transaction  may 
be  termed  a  discount,  but  if  the  bank  has  paid  out  the  money 
on  the  check  to  "  B,"  it  could  as  well  be  called  a  purchase  of 
the  check. 

§  238.  State  banks,  power  not  limited. 

The  power  of  State  banks  to  purchase  promissory  notes  when 
drawn  negotiable,  has  never  been  questioned.  The  statutes  of 
all  the  States  make  promissory  notes,  when  drawn  negotiable, 
a  class  of  instruments  that  may  be  purchased  and  transferred 
from  one  person  to  another,  "and  the  purchaser  may  legally  hold 
and  enforce  payment  thereon. 

The  power  to  buy  and  sell  promissory  notes  therefore  is  an 
incidental  power  granted  to  State  banks. 

To  deny  this  authority  to  a  banking  corporation,  whether 
such  corporation  be  organized  under  the  N^ational  or  general 
laws  of  a  State,  may  raise  the  constitutional  question  —  "  can 
the  Legislature  by  a  general  law,  which  declares  a  note 
regotiable  then  enact  a  law  and  say  that  it  is  an  instru- 
m.ent  negotiable,  but  one  which  a  banking  corporation  shall  not 
purchase?  " 

Savings  banks,  by  special  statutory  provisions,  may  be 
estopped  by  a  statute,  from  making  loans  upon  personal  secu- 
'  24 


370  Dealiis^g  IX  Commercial  Paper.       [cji.  xxviii. 

rity;  but  the  purchasing  of  a  note  secured  by  mortgage  on  real 
estate  is  not  prohibited,  and  where  the  statute  only  required  that 
a  certain  percentage  of  the  loans  of  a  savings  bank  must  be 
made  upon  real  estate  security,  the  bank  may  invest  the  re- 
mainder of  its  loanable  funds  in  promissory  notes,  and  the  mode 
of  investment,  whether  by  loaning  outright  or  purchasing  a 
note  by  the  way  of  discount,  cannot  be  questioned. 

The  charter  of  a  State  bank  may  limit  the  power  iu  the 
organization  and  say  that  it  shall  not  purchase  promissory  notes; 
but  must  invest  its  money  in  promissory  notes  made  directly  to 
the  banking  corporation;  but  in  the  absence  of  such  provisions, 
in  the  bank's  charter,  a  State  bank  has  the  power  to  purchase 
outright  a  negotiable  promissory  note. 


CHAPTER  XXIX. 


BANKS  HOLDING  PUBLIC  FUNDS. 

§  239.  National  banks  depositaries  —  Public  moneys. 

Section  5153  Revised  Statutes  U.  S.  provides  that: 

''All  Xational  banking  associations,  designated  for  that  pur- 
pose by  the  Secretary  of  the  Treasury,  shall  be  depositaries  of 
public  money,  except  receipts  from  customs,  under  such  regula- 
tions as  may  be  prescribed  by  the  Secretary;  and  they  may 
also  be  employed  as  financial  agents  of  the  Government;  and 
they  shall  perform  all  such  reasonable  duties,  as  depositaries 
of  public  moneys  and  financial  agents  of  the  Government,  as 
may  be  required  of  them.  The  Secretary  of  the  Treasury 
shall  require  the  associations  thus  designated  to  give  satis- 
factory security,  by  the  deposit  of  United  States  bonds  and 
otherwise,  for  the  safe-keeping  and  prompt  payment  of  the 
public  money  deposited  with  them,  and  for  the  faithful  per- 
formance of  their  duties  as  financial  agents  of  the  Government. 
And  every  association  so  designated  as  receiver  or  depositary 
of  the  public  money  shall  take  and  receive  at  par,  all  of  the 
national  currency  bills,  by  whatever  association  issued,  which 
have  been  paid  into  the  Government  for  internal  revenue  or 
for  loans  or  stocks." 

By  the  provisions  of  this  section,  national  banking  associa- 
tions which  are  designated  for  that  purpose  by  the  Secretary 
of  the  Treasury,  shall  be  depositaries  of  public  moneys. 

Public  money  is  defined  by  Black  as  follows: 

"  This  term,  as  used  by  the  laws  of  the  United  States,  in- 
cludes all  the  funds  of  the  general  Government  derived  from 
the  public  revenues  or  intrusted  to  the  fiscal  officers." 

When  a  national  banking  association  desires  to  be  desig- 
nated as  a  depositary  of  public  money,  application  for  that 
purpose  must  be  made  directly  to  the  Secretary  of  the  Treas- 
ury. Upon  receipt  of  such  application,  the  Secretary  of  the 
Treasury  has  discretionary  power  to  refuse  or  grant  the  ap- 
plication. If  the  application  is  granted,  the  security  required 
will  be  furnished  by  the  depositary  bank.     The  security  re- 

[371] 


372  Banks  IIoldia^g  Public  Funds.  [ch.  xxix. 

quired  to  be  furnished  as  to  amount  is  discretionary  with  the 
Secretary  of  the  Treasury;  but  in  no  instance  will  a  desig- 
nation be  made  on  security  less  than  $50,000. 

Where  a  national  bank,  not  designated  as  a  depositary  of 
public  money,  under  the  permissive  authority  of  law  receives 
deposits  made  by  postmasters  in  their  official  capacity,  the 
money  so  deposited  assumes  a  fiduciary  relation  to  the  Gov- 
ernment and  the  bank  thereby  becomes  the  bailee,  and  as  such 
bailee,  it  becomes  directly  responsible  to  the  Government  for 
moneys  which  it  knowingly  or  negligently  alloM^s  the  post- 
master to  withdraw  by  private  check.-' 

Sections  3620,  4046,  3847,  4046,  5488  and  5497  Revised 
Statutes,  TJ.  S.,  treat  upon  the  duty  concerning  disbursing 
officers  and  upon  postmasters  depositing  with  depositaries,  and 
postmaster's  deposits  where  made  within  a  county  where  there 
are  no  designated  depositaries,  and  also  penalty  where  unau- 
thorized deposits  of  money  and  penalty  for  unauthorized  re- 
ceipts or  use  of  public  money. 

A  national  bank  designated  as  a  depositary  of  public  money 
does  not  constitute  the  bank  an  agent  of  the  Government,  and 
the  Government,  in  case  of  failure  of  the  bank,  will  not  be 
liable  for  the  deposit.^ 

A  national  bank  does  not  have  to  be  designated  as  a  deposi- 
tary of  public  money  to  give  it  authority  to  receive  public 
moneys  or  funds  belonging  to  States,  counties,  cities  and  like 
municipalities.  In  the  case  of  State  of  Nebraska  v.  First 
National  Bank  of  Orleans,  88  Fed.  Rep.  947,  held:  ''  Where 
a  State  Treasurer  places  State  funds  in  a  national  bank  subject 
to  check,  the  bank  giving  security  therefor  and  agreeing  to 
pay  interest  on  daily  balances,  the  transaction  is  a  deposit  and 
not  a  loan  to  the  bank." 

State  banks,  unless  prohibited  by  statute,  may  accept  public 
moneys  on  deposit.  But  where  the  statute  of  a  State  forbids 
the  taking  and  holding  of  such  funds,  they  can  only  (if  at  all), 
be  accepted  as  a  special  deposit,  which  is  a  deposit  made  of  a 
particular  thing,  with  a  depositary;  and  when  made  of  money 
which  is  sealed  up,  the  title  to  it  remains  in  the  depositor.  A 
deposit  of  public  funds,  when  made  a  special  deposit  in  a  bank, 

1  United  States  v.  National  Bank  2  Branch  r.  Tlie  U.  S.,  1  N.  B.  C. 

of  Ashville,  73  Fed,  Rep.  379.  3G3. 


cii.  XXIX.]  Baxkix^g.  373 

the  relationship  of  debtor  and  creditor  as  between  the  depositor 
and  the  bank  is  not  established,  and  the  funds  when  so  de- 
posited cannot  be  carried  or  intermingled  with  other  funds  of 
the  hank.  They  must  be  kept  separate  and  apart  from  the 
general  deposits,  and  be  turned  over  to  the  public  officer  or 
authority  authorized  to  receive  them  at  any  time  when  de- 
manded. 

A  State  bank  prohibited  by  statute  from  accepting  public 
money  on  deposit  in  a  general  way,  is  not  permitted  to  pay 
interest  on  a  special  deposit. 

Public  funds  cannot  be  loaned  by  the  bank  when  accepted 
as  a  special  deposit;  but  when  a  bank  has  the  right  by  lav/  to 
accept  public  funds  on  deposit  in  a  general  way,  it  may  agree 
to  pay  interest  on  the  same  and  may  loan  the  deposits. 

It  has  been  held  that,  as  between  the  treasury  of  a  school 
district,  handling  school  funds,  where  a  depositor  deposited 
such  funds  in  the  bank  by  a  general  deposit,  which  ordinarily 
creates  the  relationship  of  debtor  and  creditor,  the  banker  re- 
ceiving such  funds,  knowing  them  to  be  held  by  the  depositor 
in  an  official  capacity,  if  the  bank  accepts  the  same,  it  becomes 
a  trustee  for  the  beneficial  owner,  the  school  district. 

AVhere  the  Constitution  of  a  State  by  its  provisions  forbids 
the  depositing  of  public  moneys  in  a  bank,  to  be  held  by  it  as 
a  general  deposit,  the  taking  of  such  deposit  is  a  direct  viola- 
tion of  law;  and  where  the  statute  provides  that  it  is  a  felony 
the  officers  of  such  bank  become  criminallv  liable. 


CHAPTER  XXX. 


BANKS  DEALING  IN  REAL  ESTATE. 

§  240.  Limitations  upon  national  banks. 

The  Irrational  Banking  Act,  section  5137,  ReA-ised  Statutes 
of  the  United  States,  provide: 

''A  national  banking  association  may  purchase,  hold,  and 
convey  real  estate  for  the  following  purposes,  and  for  no 
others: 

''  1st.  Such  as  shall  be  nccessaiy  for  its  immediate  accom- 
modation in  the  transaction  of  its  business, 

"  2nd.  Such  as  shall  be  mortgaged  to  it  in  good  faith  by 
way  of  security  for  debts  previously  contracted. 

''  3rd.  Such  as  shall  be  conveyed  to  it  in  satisfaction  of 
debts  previously  contracted  in  the  course  of  its  dealings. 

''  4th.  Such  as  it  shall  purchase  at  sales  under  judgments, 
decrees,  or  mortgages  held  by  the  association,  or  shall  pur- 
chase to  secure  debts  due  to  it. 

"  But  no  such  association  shall  hold  the  possession  of  any 
real  estate  under  mortgage,  or  the  title  and  possession  of  any 
real  estate  purchased  to  secure  any  debts  due  to  it,  for  a  longer 
period  than  five  years." 

A  national  banking  association  cannot  purchase  or  convey 
real  estate  by  conveyance  executed  by  its  officers,  unless  such 
conveyance  be  duly  authorized  by  a  resolution  passed  by  the 
board  of  directors. 

A  national  bank  may  purchase  and  hold  real  estate,  first, 
such  as  shall  be  necessary  for  its  immediate  accommodation 
in  the  transaction  of  its  business. 

There  are  no  restrictions  or  limitations  imposed  as  to  the 
amount  that  may  be  invested  in  real  estate  or  in  a  banking- 
house  to  be  used  by  the  bank  in  the  conduct  of  its  business. 
The  amount  that  it  may  invest  is  a  discretionary  measure  to 
be  determined  only  by  the  board  of  directors. 

"Where  a  banking  association  invests  a  large  portion  of  its 
capital  stock  in  real  estate,  and  a  banking  house  is  erected 

[3741 


CH.  XXX.]  Banking.  375 

thereon,  wliicli  investment  is  far  in  excess  of  the  requirements 
necessary  for  its  immediate  accommodation  in  the  transaction 
of  its  business,  such  an  act  would  certainly  be  bad  policy,  if 
not  a  violation  of  the  statute. 

The  bank  may  claim  that  the  investment  is  a  profitable  one, 
but  the  statute  restricts  it  and  limits  its  power  to  the  purchase 
of  such  real  estate  as  shall  be  necessary  for  its  immediate 
accommodation  in  the  transaction  of  its  business. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
McCormick  v.  Market  Bank,  165  IT.  S.  538,  denies  the  power 
of  a  bank  to  contract  by  lease  (at  a  large  rent  of)  an  office  to 
be  occupied  "  as  a  banking  ofiice  and  for  no  otlier  purpose," 
for  a  term  of  years,  before  having  been  duly  authorized  by 
the  Comptroller  of  the  Currency,  the  privilege  of  commenc- 
ing business.^ 

A  national  bank  may  "  hold  "  such  (real  estate)  "  as  shall 
be  mortgaged  to  it  in  good  faith  by  way  of  security  for  debts 
previously  contracted." 

The  bank  is  expressly  prohibited  from  taking  a  mortgage 
to  secure  a  debt  unless  the  debt  is  one  which  has  been  pre- 
viously contracted. 

A  debt  previously  contracted  is  one  made  at  a  date  prior  to 
the' date  of  the  mortgage.  The  debt  may  be  one  antedating 
the  mortgage  a  month  or  a  day.  If  the  mortgage  is  taken  on 
the  same  day  the  debt  is  contracted,  it  would  be  tainted  with 
saspicion,  from  which  evidence  could  only  relieve  it. 

In  the  case  of  First  l^ational  Bank  of  Fort  Dodge  v.  Haire 
ei  al.,  36  Iowa,  443,  where  a  national  bank  refused  to  negotiate 
a  loan  upon  the  responsibility  of  a  firm,  but  agreed  to  and  did 
make  the  loan  upon  a  note  made  by  one  member  of  the  firm 
to  the  other  and  indorsed  by  the  latter  to  the  bank,  the  maker 
giving  a  bond  and  mortgage  upon  separate  property  to  secure 
the  indorser  against  liability  upon  his  indorsement,  with  an 
agreement  that,  in  case  of  default,  the  security  should  inure 
to  the  bank,  held:  That  the  bond  and  mortgage  were  not 
within  the  prohibition  of  the  act  of  Congress  creating  national 
banks  against  such  banks  holding  real  estate  by  purchase  or 
mortgage;  that  the  same  were,  therefore,  legal  and  binding 

1  McCormick   r.  The  Market  Nat.    Bank  of   Chicago,    162    111.    100. 


376  Banks  Dealing  in  Real.  Estate.  [ch.  xxx. 

and  might  be  enforced  for  the  benefit  of  the  bank.  The  court 
in  construing  this  statute,  says: 

^'  We  would  not  construe  this,  or  any  other  statute,  strictly 
and  by  its  very  letter  only;  but  would  look  to  its  object  and 
purpose,  and  give  to  its  language  such  just  and  fair  interpre- 
tation as  would  most  completely  effectuate  that  purpose.  Not 
forgetting  this,  let  us  look  first  at  its  terms. 

"  It  does  not  prohibit  the  mortgage  of  real  property  to 
another  to  be  by  that  other  held  as  security  for  a  contempora- 
neous loan  made  by  the  bank;  it  says  in  effect  that  the  bank 
may  hold  such  real  estate  as  shall  be  mortgaged  to  it  in  good 
faith  for  debts  previously  contracted,  and  that  such  association 
(bank)  shall  not  hold  real  estate  for  any  other  purpose  than 
as  specified.  iSTow,  it  will  be  noticed  that  the  real  estate  in 
controversy  was  not  mortgaged  to  the  plaintiff  and  that  the 
plaintiff  does  not  now  hold  it.  Hence,  this  case  is  not  within 
the  letter  of  the  statute. 

"  But  it  is  claimed  that  the  effect  of  the  transaction,  as 
claimed  by  plaintiff  and  as  proved,  is  the  same  as  a  mortgage 
to  it,  and  therefore,  it  is  within  the  spirit  or  purpose  of  the 
law.  When  prudent  officers  of  a  bank  are  asked  to  make  a 
loan,  they  look  inter  alia  to  the  ability  of  the  borrower  to  pay 
as  evidenced  by  his  property,  real  and  personal.  If  he  has 
not  sufficient  propert}^  they  decline  the  loan;  but  if  some 
friend  of  his  shall  convey  to  him  in  fee  sufficient  real  estate, 
the  same  officers  might  make  the  loan.  The  loan,  so  made, 
would  not  be  within  the  act,  although  the  officers,  in  good 
faith,  relied  upon  such  real  estate  by  way  of  security  for  the 
repayment  of  the  loan.  And,  if  an  indorscr  was  offered  who 
was  thought  insufficient,  but  when  certain  real  estate  was  con- 
veyed to  him  he  was  regarded  as  sufficient,  the  rule  would 
be  the  same.  And,  if  instead  of  being  conveyed  absolutely,  it 
was  simply  mortgaged  to  the  indorser,  and  thereby  he  was 
thought  to  be  sufficient  security,  the  rule  would  not  be  differ- 
ent. In  either  case  the  reliance  would  be  upon  the  real  estate 
and  the  ability  to  pay  by  reason  of  it.  Neither  would  be 
within  the  prohibition  of  the  act  of  Congress.  ISFor  would  it 
alter  the  case,  if  the  borrower  or  indorser  should  say  to  the 
officers,  if  I  fail  to  pay  at  maturity,  there  is  the  real  estate  and 
you  may  subject  it  to  the  payment  of  the  debt.     This  they 


cH.  XXX.]  Baxkixg.  377 

could  do  without  siicli  declaration.  In  other  words,  every 
loan  or  discount  by  a  bank  is  made  in  good  faith,  in  reliance, 
by  way  of  security,  upon  the  real  or  personal  property  of  the 
obligors,  and  unless  the  title  by  mortgage  or  conveyance  is 
taken  by  the  bank  or  directly  for  its  use,  the  case  is  not  within 
the  prohibition  of  the  statute. 

"'  The  fact  that  the  title  or  security  may  inure  indirectly 
to  the  security  and  benefit  of  the  bank,  will  not  vitiate  the 
transaction.  Some  of  the  cases  upon  quite  analogous  statutes 
go  much  further  than  this." 

Where  "A"  executes  a  promissory  note  to  "  B  "  secured  by 
a  trust  deed  on  real  estate,  a  national  bank  may  loan  money 
to  "  B  "  on  his  personal  note,  and  take  an  assignment  of  the 
trust  deed  as  security  therefor ;  and  may  foreclose  the  security.^ 

A  national  bank  cannot  take  a  mortgage  upon  real  estate 
to  secure  notes  thereafter  to  be  discounted.^ 

In  the  case  of  Shinkle  et  ux  v.  First  Xational  Bank  of  Ripley, 
22  Ohio  St.  516,  held:  That  where  two  or  more  parties  were 
jointly  indebted  to  one  bank  in  two  several  sums  of  money, 
and  also  to  another  bank  in  one  sum  of  money ;  and  a  mutual 
agreement  was  entered  into  whereby  the  notes  of  the  bank 
should  be  surrendered,  and  the  several  debtors  give  their  in- 
dividual notes  and  mortgages  for  their  portion  of  the  indebted- 
ness ;  all  of  said  notes  by  agreement  being  dravm  to  a  third 
person,  and  by  him  indorsed  to  one  of  the  banks ;  that  in  an 
action  by  the  bank  against  one  of  the  debtors  upon  the  note 
and  mortgage,  there  was  a  sufficient  consideration  to  support 
the  new  notes  and  mortgages ;  and  that  the  bank  had  authority 
to  foreclose.  That  it  had  the  power  to  adopt  reasonable  and 
such  necessary  measures  in  collecting  the  debt ;  that  such  a 
power  was  an  incidental  power  belonging  to  the  bank  and  not 
in  violation  of  the  statute.'* 

A  national  bank  is  empowered  to  hold  real  estate  such  as 
shall  be  conveyed  to  it  in  satisfaction  of  debts  previously  con- 
tracted in  the  course  of  its  business.  And  where  a  national 
bank  loaned  a  large  sum  of  money  to  "  B  "  to  engage  in  the 
lumber  business,  "  B  "  afterward  becoming  embarrassed,  the 

2  Bank  r.  ^Matthews.  98  U.  S.  621.  4  Heath  et  al.  r.  Tlie  Second  Nat. 

3  72     Pa.     St.     4.56;     Fridley     v.       Bank  of  Lafavette,  70  Ind.  106. 
Bowen.  87   111.   151. 


378  Banks  Dealing  in  Real  Estate,  [ch.  xxx. 

bank  secured  a  deed  of  trust  upon  the  timber  lands  OA\nied  bv 
"  B  "  to  secure  its  debt.  Afterward  the  bank  foreclosed  upon 
said  lands,  purchased  the  property  which  was  not  redeemed, 
and  through  the  bank's  agent  it  conducted  the  lumber  busi- 
ness. This  being  done  wholly  with  a  view  of  reimbursing  itself 
out  of  the  proceeds  of  the  business  for  the  money  it  had  loaned. 
The  court  held  that  there  is  in  connection  with  all  corpora- 
tions, certain  implied  powers  which  are  incidental  to  the  ex- 
pressed powers,  and  without  which  no  corporation  can  suc- 
cessfully transact  business,  and  that  the  corporation  lawfully 
exercised  the  right  to  conduct  a  lumber  business  and  save  its 
debt.^ 

The  above  case  does  not  directly  or  indirectly,  by  implica- 
tion or  otherwise,  sanction  the  right  of  the  bank  to  conduct 
a  lumber  business,  run  saw-mills  and  the  like ;  but  coming  into 
possession  of  lands  upon  which  timber  or  crops  are  growing 
and  by  the  marketing  and  selling  the  same,  the  debt  to  the 
bank  can  be  canceled  and  paid,  the  act  becomes  an  incidental 
power  and  one  not  in  violation  of  the  principles  of  law,  which 
provides  that  a  banking  corporation  shall  not  be  permitted 
to  conduct  any  other  business  than  that  for  which  it  M'as  in- 
corporated to  do. 

It  is  a  well  settled  principle  that  a  national  bank  has  no 
power  to  buy  land  for  the  purpose  of  selling  it  again  for  profit ; 
but  it  may  take  land  in  pa^mient  of  its  claim,  and  ''  an  agree- 
ment by  a  bank  to  procure  a  release  of  a  mortgage  held  by  a 
third  party  upon  lands  on  which  the  bank  had  a  mortgage,  is 
not  primarily  an  agreement  relating  to  banking.  But  when 
made  to  secure  payment  of  the  debt  due  to  the  bank,  the  agree- 
ment is  not  ultra  vires."^ 

"A  national  bank  may  purchase  real  estate  to  secure  satis- 
faction of  a  debt  due  it,  even  though  it  costs  a  considerable 
sum  over  and  above  the  debt,  and  the  title  to  the  land  is  ac- 
quired from  another  than  the  debtor,  and  may  take  the  title 
thereto  in  the  name  of  its  president  for  its  use.'"^ 

A  national  banking  association  has  authority  to  purchase 

5  John  A.  Rooblinps.   Sons   Co.  v.  National  Mohawk  Valley  Bank,,  104 

First  Nat.  Bank  of  Richmond,  Va.,  N.  Y.  414. 

30  Fed.  Rep.  744.  ^  Washinjjton     Libbey    et     al.     v. 

G  Thomas   McCrant,  Respondent,  v.  Union  Nat.  Bank  et  al.,  622. 


CH.  XXX.]  Banking.  379 

such  real  estate  as  may  be  necessary  in  order  to  secure  a  debt 
due  to  it  although  in  excess  thereof,  if  the  security  of  the  debt 
is  the  real  object  of  the  jmrchaser.^ 

It  is  well  settled  that  when  a  national  bank  legally  acquires 
real  estate,  it  may  sell  it  again  and  take  a  mortgage  back  to 
secure  deferred  payments.^ 

It  seems  to  be  settled  that  if  a  national  bank  should  take 
from  a  debtor,  real  estate  which  it  clearly  had  no  right  to  hold, 
the  title  would  be  defeasible  only  at  the  instance  of  the  State. 

The  Court,  in  the  case  of  Mapes  v.  Scott,  et  al,  94  111.  379, 
says  that: 

"  Conveyances  to  a  national  bank  must  for  all  purposes  be 
regarded  as  valid  until  called  into  question  by  a  direct  proceed- 
ing* instituted  for  that  purpose  by  the  Government,  as  held  in 
National  Bank  v.  Matthews,  8  Otto  621.  As  this  decision  of 
the  Supreme  Court  of  the  United  States  involves  a  construc- 
tion of  an  act  of  Congress,  it  is  paramount  and  must  prevail." 

The  government  alone  can  complain  that  the  bank  has  ex- 
ceeded its  powers. ^*^ 

The  last  provision  of  section  5137  relating  to  banks  hold- 
ing real  estate,  provides  that  such  associations  shall  not  hold 
the  title  to  real  estate  for  a  longer  period  than  five  years. 

For  a  violation  of  this  provision  of  the  law,  the  government 
alone  can  complain.  There  being  no  provision  of  law  fixing 
a  penalty  or  forfeiture  of  lands  held  for  a  longer  period,  the 
bank  may,  unless  complained  against,  sell  the  same  after  the 
period  of  five  years  and  the  purchaser  would  take  a  good  title. 

§  241.  State  banks  dealing  in  real  estate. 

A  State  bank  has  no  authority  to  buy  and  sfell  real  estate 
or  deal  in  the  same  for  profit. 

A  corporation  organized  under  a  State  law  to  conduct  a  bank- 
ing business,  cannot  buy  and  sell  real  estate  for  speculative 
purposes.  It  is  limited  in  its  purposes  to  conduct  such  business 
as  comes  within  its  scope  and  powers  expressed  and  implied 
in  its  charter  and  the  law. 

8  Upton  r.  National  Bank  of  So.  lo  National  Bank  v.  Matthews,  98 
Reading,    120  Mass.    153.  Otto  (U.  S.)  621;  Reynolds  v.  Craw- 

9  First    Nat.    Bank    r.    Kidd,    20  fordsville  Bank,  112  U.  S.  405. 
Minn.  234, 


380  Banks  Dealing  in  Real  Estate.  [ch.  xxx. 

The  buviiig  and  selling  of  real  estate  for  profit  is  purely 
speculative  and  is  unlawful. 

Where  the  law  of  the  State  limits  the  amount  that  may  be 
invested  in  banking  premises,  it  is  mandatory  and  if  violated 
is  cause  for  deckiring  a  forfeiture  of  its  charter.  But  when 
there  is  no  restriction  upon  this  subject,  it  is  a  question  of 
privilege  left  entirely  in  the  hands  of  the  board  of  directors. 
They  may  then  invest  in  real  estate  and  improve  the  same  to 
such  an  extent  as  may  be  necessary  for  the  use  of  the  bank  in 
conducting  its  business. 

To  invest  a  large  portion  of  the  capital  of  a  bank  in  real 
estate,  and  improve  the  same  under  the  plea  that  it  is  to  be 
used  for  banking  purposes,  when  a  reasonable  investment  would 
meet  the  immediate  necessities  of  the  bank,  is  a  breach  of  the 
bank's  power. 

When  this  power  is  grossly  abused  and  the  capital  stock 
of  the  bank  is  in  such  a  manner  consumed  to  the  injury  of  the 
stockholders,  the  directors  make  themselves  personally  liable. 
Their  acts  become  gross  extravagance  or  gross  negligence  of 
their  powers  and  duties.  As  an  illustration  of  reckless  ex- 
travagance and  improvident  investment  of  the  bank's  funds  in 
real  estate,  the  facts  in  the  case  of  Hun  v.  Carey,  82  IST.  Y. 
65,  are  given. 

Where  a  savings  bank  which  was  incorporated  in  1SG7,  up 
to  January,  1873,  its  average  deposits  were  about  $70,000, 
and  its  expenses  had  exceeded  its  income.  It  appears  in  May 
of  that  year,  by  action  of  the  board  of  trustees,  the  bank  pur- 
chased a  lot  at  a  cost  of  $29,250.  Ten  thousand  dollars  of  the 
purchase-money  being  paid  in  cash ;  the  bank  covenanting  to 
erect  a  buildijig  thereon  to  cost  not  less  than  $25,000.  Upon 
the  lot  the  bank  erected  a  building  for  a  banking-house  at  a 
cost  of  about  $27,000,  and  gave  a  mortgage  thereon  of  $30,500. 
The  object  of  the  purchase  and  buildings  was  to  improve  the 
financial  condition  of  the  bank  by  increasing  its  deposit.  The 
bank  failed  in  1875.  The  lot  and  buildings  and  other  property, 
which  produced  less  than  $1,000,  constituted  all  of  its  assets; 
the  real  estate  was  swept  away  by  foreclosure  of  the  mort- 
gage. At  the  time  of  the  purcliase  the  bank  occupied  leased 
rooms ;  its  assets  were  insufficient  by  several  thousand  dollars 
to  pay  its  debts,  which  fact  was  known  to  the  trustees.     By 


CH.  XXX.]  Baxki:n^g.  381 

the  charter  of  the  bank,  it  had  power  to  purchase  a  lot  for  a 
banking-house,  requisite  for  the  transaction  of  its  business.  In 
an  action  brought  by  the  receiver  of  the  bank  against  the  trus- 
tees for  damages  caused  bv  alleged  improper  investment  of 
its  funds,  held  by  the  court,  that  the  facts  justified  a  finding 
that  the  case  was  not  one  of  mere  error  or  mistake  of  judg- 
ment on  the  part  of  the  trustees,  but  an  improvident  and 
reckless  extravagance,  and  that  they  were  properly  held  liable. ^^ 

A  State  bank  has  power  to  take  real  estate  under  foreclosure 
proceedings.  To  buy  the  same  to  secure  a  debt  simultaneously 
or  previously  contracted.  To  buy  at  a  price  over  and  above  the 
amount  necessary  to  satisfy  its  claim.  To  pay  off  a  prior  lien 
in  order  to  secure  or  save  its  debt.  It  also  has  thfe  right,  while 
holding  such  lands,  to  conduct  the  business  of  farming  the 
same,  and  improve  the  land,  if  necessary,  by  building  a  resi- 
dence thereon,  building  fences,  dig  a  well,  cutting  timber  from 
the  land,  operate  a  sawmill  and  sell  the  products;  and  do  any- 
thing necessary  to  be  done  in  relation  thereto  in  the  interest  of 
the  stockholders  and  the  depositors.  It  has  the  power  to  do 
whatever  is  necessary  to  render  productive,  property  that  it  has 
taken  for  debt. 

In  the  further  discussion  of  this  subject,  the  Supreme  Court 
of  Georgia,  in  the  case  of  Reynolds,  assignee,  v.  Simpson  and 
Ledbetter,  74  Ga.  454,  the  court  says: 

"  "Where  a  banking  corporation  acquired  possession  of  prop- 
erty, either  by  a  lien  thereon,  or  the  purchase  of  the  same,  for 
the  payment  of  the  debt  due  to  it,  and  expends  money  on  it, 
or  furnishes  supplies  either  for  its  preservation  or  to  carry  on 
the  business  in  which  such  property  is  employed,  with  a  view 
of  rendering  it  productive,  in  order  to  satisfy  the  debt  it  holds 
against  the  former  owner  of  th^  property,  it  is  not  chargeable 
with  exceeding  its  corporate  powers  by  engaging  in  a  business 
l)eyond  the  scope  and  purpose  of  its  creation.  It  is  merely  exer- 
cising a  power  which  is  common  to  all  corporations ;  it  can  pur- 
chase and  hold  such  property,  real  or  personal,  as  is  necessary 
to  the  purposes  of  its  organization,  and  can  perform  all  such 
acts  as  are  necessary  for  the  legitimate  execution  of  such 
purposes." 

11  Hun  V.  Gary  et  al.,  82  N.  Y.  65. 


382  Banks  Dealing  in  Real  Estate.  [ch.  xxx. 

The  Constitution  of  the  State  of  California,  article  XII,  §  9, 
provides  that  a  corporation  "  shall  not  hold  for  a  longer  period 
than  five  years  any  real  estate  except  such  as  may  be  necessary 
for  carrying  on  its  business." 

A  banking  corporation  (under  circumstances  which  it  cannot 
prevent)  may  be  compelled  to  purchase  real  estate  at  a  judicial 
sale  in  order  to  save  an  advancement  made  by  it  as  a  loan  upon 
the  same,  and  it  cannot  by  law  be  compelled  to  dispose  of  said 
real  estate  within  a  limited  time ;  especially  so  when,  if  forced 
to  sell  the  same,  the  sacrifice  would  destroy  the  solvency  of  the 
bank,  and  cause  serious  loss  to  depositors  and  creditors. 

It  might  be  a  reasonable  construction  of  this  provision  of 
the  constitution  to  say  that  the  lands  purchased  at  a  judicial 
sale  by  the  bank,  wherein  it  was  the  plaintiff  in  the  foreclosure 
procedings,  and  was  endeavoring  to  collect  a  debt,  that  the 
hank,  if  it  became  the  purchaser  at  the  sale  and  afterward 
obtained  the  title  to  the  property,  could  hold  the  same  as  a 
necessary  asset  for  carrying  out  its  business,  and  would  not 
be  compelled  to  sacrifice  the  same  at  sale  within  the  five  years. 


CHAPTER  XXXI. 


OFFICERS  BORROWING  FUNDS  OF  BANK. 

§  242.  Prohibited  from  loaning  to  themselves. 

All  banking  associations,  unless  restricted  by  law,  may  make 
loans  to  their  officers  and  agents;  but  the  incidental  powers 
vested  in  an  officer  of  a  bank,  permitting  him  to  loan  the  funds 
of  the  bank  to  others,  does  not  authorize  such  officer  or  agent 
of  the  association  over  wdiich  he  presides  and  represents  to 
make  a  loan  of  the  bank  funds  to  himself.  His  relationship  as 
an  agent  of  the  bank  may  invest  him  with  incidental  power  to 
make  loans  to  others ;  but  his  office  prohibits  him  from  loaning 
to  himself  the  funds  of  the  bank.  He  cannot  certify  his  own 
check  or  sigTi  a  certificate  of  deposit  made  payable  to  himself. 

The  power  to  loan  the  funds  of  the  bank  and  make  discounts 
is  vested  by  law  in  the  board  of  directors. 

AVhere  an  officer  of  the  bank  execcutes  a  note  drawm  payable 
to  the  bank  over  which  he  presides,  and  takes  the  money  repre- 
sented by  the  note  without  first  securing  authority  from  the 
board  of  directors,  his  act  becomes  unlawful  and  may  be  treated 
as  a  felony. 

While  acting  in  an  official  position  and  representing  the  bank, 
his  duties  are  to  preserve  its  funds  and  protect  it  in  all  of  its 
transactions.  He  is  employed  for  this  purpose,  and  to  execute 
the  orders  of  the  board  of  directors.  To  perform  all  the  execu- 
tive acts  necessary  to  carry  on  the  business  of  the  bank;  but  he 
has  no  power  or  authority  to  borrow  any  of  the  funds  of  the 
bank  unless  permitted  to  do  so  by  the  board  of  directors. 

The  fact  that  he  may  have  secured  his  note  by  ample  col- 
lateral security  does  not  authorize  or  legalize  the  act ;  but  where 
the  board  of  directors  or  the  financial  committee  appointed  by 
the  board  have  authorized  and  approved  of  a  loan  to  be  made  to 
an  officer  of  the  bank,  he  may  execute  his  note  to  the  association 
artd  borrow  its  funds. 

§  243.  Restrictions  and  limitations. 

"Where  the  law  imposes  restrictions  as  to  the  amount  which 
may  be  loaned  to  any  one  person,  association,  or  company,  the 

[383] 


384  Officeks  Borrowing  Funds  of  Bank.     [ch.  xxxi. 

directors  who  ivillfuUy  violate  the  law  by  authorizing  a  loan  in 
excess  of  the  amount  specified  in  the  law,  and  where  by  such 
action  a  loss  occurs  to  the  bank,  they  make  themselves  civilly 
and  criminally  liable. 

The  National  Banking  Act,  section  5:200  Rev.  Stat.  U.  S., 
provides  that: 

"  The  total  liabilities  to  any  association,  of  any  person,  or  of 
any  company,  corporation,  or  firm  for  money  borrowed,  in- 
cluding in  the  liabilities  of  a  company  or  firm  the  liabilities  of 
the  several  members  thereof,  shall  at  no  time  exceed  one-tenth 
part  of  the  amount  of  the  capital  stock  of  such  association 
actually  paid  in.  But  the  discount  of  bills  of  exchange  drawn 
in  good  faith  against  actually  existing  values,  and  the  discount 
of  commercial  or  business  paper  actually  owned  by  the  person 
negotiating  the  same,  shall  not  be  considered  as  money  bor- 
rowed." 

In  discussing  the  object  of  this  provision,  Chief  Justice 
linger  of  the  Court  of  Appeals  of  !N^ew  York,  in  the  case  of 
Second  National  Bank  v.  Burt,  03  K  Y.  233,  says: 

"  The  object  of  this  provision  of  the  Currency  Act  was  to 
guard  national  banks  from  the  hazard  of  loaning  money  in 
improvident  amounts  upon  speculative  and  accommodation 
paper,  but  it  contemplated  and  permitted  to  an  unlimited 
amount  the  discount  of  paper  used  and  required  in  facilitating 
the  transfer  of  property  and  money  in  the  transaction  of  the 
legitimate  business  of  the  country." 

The  provisions  of  this  section  limit  the  amount  that  may  be 
borrowed  from  the  association  by  any  one  person,  company, 
corporation,  or  firm.  It  is  not  a  restriction  prohibiting  an 
officer  or  director  of  the  bank  from  borrowing  its  funds,  but 
limits  the  amount  that  may  be  borrowed.  Where  a  loan  is  made 
to  an  officer  or  other  person  in  violation  of  the  statute  it  is  not 
void,  but  can  be  collected. 

In  the  State  of  California,  the  Legislature  has  enacted  the 
following  law: 

"  No  director  or  officer  of  any  savings  and  loan  corporation 
must,  directly  or  indirectly,  for  himself  or  as  the  partner  or 
agent  of  others,  borrow  any  of  the  deposits  or  other  funds  of 
such  corporation,  nor  must  he  become  an  indorser  or  surety  for 
loans  to  others,  nor  in  any  manner  be  an  obligor  for  moneys 


CH.  XXXI.]  Banking.  385 

borrowed  of  or  loaned  by  such  corporation.  The  office  of  any 
director  or  officer  who  acts  in  contravention  of  the  provisions 
of  this  section  immediately  thereupon  becomes  vacant." 

The  Supreme  Court  of  the  State  of  California,  in  the  case 
of  Brittan  v.  Oakland  Bank  of  Savings,  124  Cal.  282,  in  dis- 
cussing this  subject  and  construing  the  provisions  of  said  sec- 
tion, says  that: 

"At  the  time  of  the  transaction  between  Bowman  and  the 
bank,  as  already  stated,  he  was  a  director  in  the  bank.  The 
Civil  Code,  section  578,  declared  that  no  director  or  officer  of 
any  savings  and  loan  corporation  must,  directly  or  indirectly, 
for  himself  or  as  the  partner  or  agent  of  others,  borrow  any  of 
the  deposits  or  other  funds  of  such  corporation,  and  declares 
that  the  office  of  any  director  or  officer  who  acts  in  contraven- 
tion of  this  provision  shall  immediately  thereupon  become 
vacant.  This,  however,  is  of  no  advantage  to  the  appellant, 
as  the  violation  of  the  provision  in  question  could  only  be 
availed  of  at  the  instance  of  the  State  sovereign  power.^ 

"  Besides,  the  transaction  was  executed.  In  Savings  Bank  v. 
Burns,  104  Cal.  473,  the  court,  in  answering  a  similar  conten- 
tion that  the  transaction  was  void  as  being  in  contravention  of 
the  provision  of  the  Code,  says: 

"  '  We  do  not  think  this  contention  can  be  sustained.  The 
obvious  purpose  of  the  section  of  the  Code  invoked  and  relied 
upon  was  to  protect  savings  banks  and  their  depositors.  To 
hold,  therefore,  that  if  the  deposits  or  funds  of  such  a  bank 
should  be  borrowed  by  any  of  its  officers,  directly  or  indirectly, 
no  action  could  be  maintained  by  the  bank  to  recover  the  money, 
would  often  work  out  great  injustice  and  wrong.' 

''  The  bank,  therefore,  could  have  sued  Bo^vman  to  recover 
back  the  money  loaned,  and  it  can  hold  the  pledged  stock  or  its 
proceeds  in  a  suit  for  the  recovery  of  the  same  until  such  money 
lent  on  the  faith  of  such  pledge  is  repaid." 

There  is  no  penalty  fixed  by  the  statute  laws  of  the  State 
of  California,  for  a  violation  of  section  578  of  the  Civil  Code, 
other  than  that  the  office  of  any  director  or  officer  who  acts  in 
contravention  of  the  pro\dsions  of  said  section  shall  immedi- 
ately thereupon  become  vacant. 

1  Jones  r.  Guaranty,  etc.,  Co.,  101  U.  !S.  628;  National  Bank  r.  Mat- 
thews, 98  U.  S.  621. 

9r^ 


386  Officers  Borrowing  Fua^ds  of  Bank.     [cii.  xxxi. 

The  protection  given  to  tlie  bank  and  the  depositors  by  the 
provisions  of  this  section  is  valueless.  It  is  no  punishment 
to  vacate  an  office  after  the  funds  of  the  bank  have  been  taken. 

"Where  the  Legislature  has  not  by  the  enactment  of  a  law 
prohibited  an  officer  of  a  State  bank  from  borrowing  money 
therefrom,  or  limited  the  amount  which  any  one  person  may 
borrow,  such  loans  are,  if  made  in  good  faith  and  authorized 
by  the  board  of  directors,  lawful.  But  a  loan  made  by  an 
officer  of  a  bank  to  himself  of  the  funds  of  the  bank  over 
which  he  presides,  without  first  having  such  loans  approved 
by  the  board  of  directors,  is  as  previously  stated,  unlawful. 

The  law  regulating  the  power  of  officers  presiding  over 
savings  banks  generally  prohibtits  such  officers  or  directors 
from  borro^^^ng  or  becoming  in  any  manner  indebted  to  the 
association  over  which  they  preside.  This  inhibition  is  upon 
the  principle  that  they  are  acting  in  the  capacity  as  trustees. 
That  the  funds  are  trust  funds,  and  are  such  as  should  be 
sacredly  guarded  by  them,  and  when  loaned  or  invested  they 
must  be  to  such  persons  who  have  no  responsibility  as  officers 
or  directors. 

Loans  to  officers  and  directors  in  all  banking  corporations 
over  which  they  preside  should  be  authorized  and  limited  by 
legislation.  That  the  Legislature  is  invested  with  power  to 
impose  such  limitations,  there  can  be  no  question.  If  the 
State  has  the  power  to  regulate  the  business  of  banking,  it  is 
clothed  with  authority  to  protect  and  direct  its  management 
at  least  upon  the  lines  of  prudence  and  safety. 


CHAPTER  XXXII. 


EMPLOYING  COUNSEL. 

§  244.  Authority  in  president  or  cashier. 

Subdivision  4  of  section  5136,  Eevised  Statutes  of  the  United 
States,  provides  that  a  national  bank  is  endowed  with  the  power 
"  to  sue  and  be  sued,  complain  and  defend  in  anv  court  of  law 
and  (or)  equity  as  fully  as  natural  persons." 

A  national  bank  under  this  provision  of  the  law  has  full 
power  to  employ  an  attorney  to  bring  or  defend  suits  in  any 
court  of  law  or  equity. 

The  by-laws  of  the  bank  may  provide  that  the  board  of 
directors  shall  have  the  exclusive  power  to  engage  or  employ 
counsel  for  the  bank,  or  the  authority  may  be  delegated  to  the 
president.  If  the  by-laws  are  silent  and  no  provision  is  made 
delegating  the  authority  to  engage  or  employ  counsel,  the  presi- 
dent of  a  bank,  as  its  executive  officer,  has  the  authority  con- 
ferred upon  him  without  waiting  for  or  first  obtaining  such 
authority  from  the  board  of  directors. 

The  agreement  for  compensation  to  be  paid  the  counsel  so 
employed  may  be  made  by  the  president,  and  the  bank  will 
be  bound  thereby. 

In  the  case  of  The  Citizens'  iSTational  Bank  of  Kingman  v. 
George  F.  Berry  &  Co.,  53  Kan.  696,  the  court  holds  that 
the  president  of  a  banking  corporation  has  the  power  to  em- 
ploy counsel  and  manage  the  litigation  of  the  bank  in  the 
absence  of  any  order  of  the  board  of  directors  depriving  him 
of  such  power. 

In  the  absence  of  the  president  of  the  bank,  the  cashier  has 
the  power  to  employ  counsel  and  may  perform  this  function 
at  any  time  if  the  necessity  is  an  emergency,  without  first  ob- 
taining authority  from  the  board  of  directors. 

Where  the  district  attorney  conducts  a  suit  against  a  na- 
tional bank  and  obtains  a  forfeiture  of  its  charter,  it  is  held 
that  he  is  not  entitled  to  more  than  $10,  the  amount  prescribed 
by  section  824,  Revised  Statutes  of  the  United  States,  there 

[387] 


388  Employixg  Cou:n'sel,  [ch.  xxxii. 

being  no  other  law  anthorizing  or  giving  compensation  to  a 
district  attorney  for  such  service/ 

A  district  attorney  cannot  recover  compensation  for  services 
rendered  for  condncting  snits  arising  ont  of  the  provisions  of 
the  Xational  Banking  Law,  in  which  the  United  States  or  any 
of  its  agents  or  officers  are  parties.^ 

1  Bashaw  v.  United  States,  47  Fed.  2  Gibson  v.   Peters,  Receiver,   150 

Rep.  40.  U.  S,  342. 


CHAPTER  XXXIII. 


DONATIONS  BY  BANKS. 

§  245.  Power  vested  in  stockholders. 

A  bank  cannot,  through  its  officers  or  directors,  donate  any 
portion  of  its  fnnds,  sui-plus,  profit,  or  capital,  for  any  pur- 
pose whatever.  Objects  of  usefulness  or  charity,  however 
worthy  of  encouragement  or  aid,  cannot  in  any  way  be  sup- 
ported by  gifts  or  donations  from  a  banking  corporation. 

This  restriction  seems  to  be  a  very  hard  one,  but  it  is  not 
within  the  power  of  the  officers  or  directors  of  the  association 
to  give  away  any  of  its  funds  or  earnings. 

The  stockholders,  if  the  consent  of  ail  are  obtained,  may 
make  donations,  but  the  president,  cashier,  or  directors  are 
prohibited. 

A  subscription  in  support  of  a  church,  or  circulating  the 
Bible  either  at  home  or  in  foreign  lands,  if  made  without  the 
consent  of  all  the  stockholders,  is  unlawful. 

Where  the  president  of  a  bank  who  subscribed  a  fund  to 
certain  j^arties,  on  condition  that  they  would  erect  a  paper 
mill  in  a  certain  city,  held,  first,  that  the  making  of  dona- 
tions of  its  funds  to  aid  in  the  building  of  a  paper  mill,  was 
no  part  of  the  business  for  which  the  bank  was  incorporated ; 
second,  that  the  act  of  the  president  was  not  within  the  scope 
of  his  authority  and  that  the  bank,  in  the  absence  of  an  au- 
thorization or  ratification  by  it  of  the  president's  act,  was  not 
bound  by  the  agreement  made. 

The  funds  of  a  corporation  belong  to  its  shareholders,  and 
an  agent  of  the  corporation  has  no  implied  authority  to  give 
away  the  corporate  property.  In  Jones  v.  Morrison,  31  Minn. 
140,  it  is  said: 

"  The  directors  of  the  corporation  have  no  authority  to  ap- 
propriate its  funds  in  payijig  claims  which  the  corporation  is 
under  no  legal  or  moral  obligation  to  pay ;  as  to  pay  for  past 
services  which  have  been  rendered  and  paid  for  at  a  fixed 
salary,  previously  agreed  on;  are  under  a  previous  agreement, 
that  there  should  be  no  compensation  for  them." 

[.389] 


390  DoxATioxs  BY  Banks.  [ch.  xxxiii. 

To  the  same  effect,  see  Salem  Bank  v.  Gloucester  Bank,  17 
Mass.  1 ;  Bissel  v.  City  of  Kankakee,  64  111.  249 ;  Miner  v.  Me- 
chanics' Bank,  1  Pet.  (U.  S.)  44.  See  Case  v.  Bank,  100  U.  S. 
446,  where  the  court,  in  discussing  this  question,  correctly 
says : 

"  If  this  bank  can  be  bound  by  the  agreement  of  its  presi- 
dent to  donate  $200  to  an  individual,  to  aid  him  in  building  a 
paper  mill,  then  the  bank  can  be  bound  by  the  agreement  of 
its  president  to  donate  its  entire  capital.  Such  a  rule  as  this 
would  confer  upon  the  agent  of  a  corporation  greater  powers 
than  that  possessed  by  its  directory." 


CHAPTER  XXXIV. 


CONDUCTING  SAFE    DEPOSIT. 

§  246.  Incidental  power. 

"Where  the  charter  of  a  bank  does  not  provide  for  the  con- 
ducting of  a  safe  deposit  department,  the  business  if  entered 
into  is  an  incidental  power  and  one  entirely  discretionary  with 
the  board  of  directors.  The  business  of  conducting  a  safe 
deposit  and  building  safe-deposit  vaults,  for  the  purpose  of 
preserving  property  or  money,  is  a  discretionary  power  vested 
in  the  directors  of  the  bank. 

When  a  banking  corporation  conducts  such  a  business  in 
connection  with  the  general  business  of  banking,  and  receives 
personal  property,  including  money,  from  individuals  for  safe- 
keeping, the  general  rule  of  law  is,  that  the  bank  becomes  a 
bailee,  and  in  case  of  loss  is  liable  as  such. 

It  should  be  borne  in  mind  that  there  is  a  distinction  be- 
tween the  business  of  conducting  a  safe  deposit  and  the  taking 
of  money  or  personal  property  on  special  deposit. 

Where  the  bank  conducts  a  safe  deposit  business  for  the 
benefit  of  its  customers  without  compensation,  it  is  liable  only 
for  gross  negligence;  but  persons  depositing  valuable  articles 
in  banks  for  safe-keeping  without  reward  have  the  right  to 
expect  that  such  measures  will  be  taken  as  will  ordinarily 
secure  them  from  burglars  outside  and  from  thieves  within. 

Where  persons  are  engaged  in  the  business  of  banking,  and 
receive  for  safe-keeping  a  parcel  containing  bonds,  which  was 
put  in  their  vaults,  and  they  were  notified  that  their  assistant 
cashier  who  had  free  access  to  the  vaults  where  the  bonds  were 
deposited  and  who  was  a  person  of  scant  means  and  engaged 
in  speculation  in  stocks,  and  the  directors  made  no  examina- 
tion as  to  the  securities  deposited  with  them,  the  assistant 
cashier  having  stolen  the  bonds  so  deposited;  held,  that  the 
directors  were  guilty  of  gross  negligence  and  were  liable  to 
the  o^\^ler  of  the  bonds  for  their  value  at  the  time  they  were 
stolen.^ 

1  Preston  v.  Prather,  137  U.  S.  604;  Gray  et  al.  v.  Merriam,  148  111.  179. 

[391] 


092  Conducting  Safe  Deposit.  [ch.  xxxiv. 

In  the  ease  of  Chaflin  et  al  v.  Mever,  75  N.  Y.  260,  the 
court  lays  down  the  rule  of  negligence  to  be  as  follows: 

''  The  cases  agree  that  where  a  bailee  of  goods,  although 
liable  to  their  o^\^ler  for  their  loss  only  in  case  of  negligence, 
fails,  nevertheless,  upon  their  being  demanded,  to  deliver  them 
or  account  for  such  non-delivery,  or,  to  use  the  language  of 
Sutherland,  J.,  in  Schmidt  v.  Blood,  where  '  there  is  a  total 
default  in  delivering  or  .accounting  for  the  goods  '  (9  Wend, 
268),  this  is  to  be  treated  as  prima  facie  evidence  of  neg- 
ligence.^ 

"  This  rule  proceeds  either  from  the  assumed  necessity  of 
the  case,  it  being  presumed  that  the  bailee  has  exclusive  knowl- 
edge of  the  facts  and  that  he  is  able  to  give  the  reason  for  his 
non-delivery,  if  any  exist,  other  than  his  own  act  or  fault,  or 
from  a  presumption  that  he  actually  retains  the  goods  and  by 
his  refusal  converts  them, 

''  But  where  the  refusal  to  deliver  is  explained  by  the  fact 
appearing  that  the  goods  have  been  lost,  either  destroyed  by 
fire  or  stolen  by  thieves,  and  the  bailee  is  therefore  unable 
to  deliver  them,  there  is  no  prima  facie  evidence  of  his  want 
of  care,  and  the  court  will  not  assume,  in  the  absence  of  proof 
on  the  point,  that  such  fire  or  theft  was  the  result  of  his 
negligence.^ 

''  Grover,  J.,  in  46  X.  Y.,  says,  in  delivering  the  opinion 
of  the  court,  the  question  is  ^  whether  the  defendant  was  bound 
to  go  further  (i.  e.,  than  showing  the  loss  by  fire)  and  show 
that  it  and  its  employees  were  free  from  negligence  in  the 
origin  and  progress  of  the  fire,  or  whether  it  was  incumbent 
upon  the  plaintiffs  to  maintain  the  action  to  prove  that  the  fire 
causing  the  loss  resulted  from  such  negligence.'  And  he  pro- 
ceeds to  show  that  the  charge  of  the  judge  who  tried  the  cause 
gave  to  the  jury  the  former  instruction,  and  that  this  was  con- 
trary to  the  law  and  erroneous.  So  Sutherland,  J.,  in  9  Wend. 
(supra),  in  the  case  of  a  warehouseman,  says  the  onus  of  show- 
ing the  negligence  '  seems  to  be  upon  the  plaintiff,  unless  there 
is  a  total  default  in  delivery  or  accounting  for  the  goods.' 

2  Fairfax  r.  X.  Y.  C.  &  H.  R.  K.  3  Lamb  v.  Camdpn  &  Amboy  Pv.  R. 

R.  Co..  G7  X.  Y.  11  ;  Steers  v.  Liver-  Co.,  46  N.  Y.  271 :  Schmidt  r.  Blood, 

pool  Steamship  Co.,  57  N.  Y.  1;  Bur-  !)   Wend.   268;    Piatt   v.  llibbard,   7 

nell  V.  X.  Y.  C.  R.  R.  Co.,  45  X.  Y.  Cow.  497. 
184. 


en.  XXXIV.]  Banking.  393 

"And  he  cites  a  note  of  Judge  C'owen  to  his  report  of  Phitt 
V.  Hibbard  (7  Cow.  500),  in  which  that  very  learned  author 
says,  criticising  and  questioning  a  charge  of  the  circuit  judge, 
'  the  distinction  would  seem  to  be  that  when  there  is  a  total 
default  to  deliver  the  goods  bailed  on  demand,  the  onus  of 
accounting  for  the  default  lies  with  the  bailee;  otherwise  lie 
shall  be  deemed  to  have  converted  the  goods  to  his  own  use, 
and  trover  will  lie  (Anonymous,  2  Salk.  655),  but  when  he  has 
shown  a  loss,  or  where  the  goods  are  injured,  the  law  will  not 
intend  negligence.    The  onus  is  then  shifted  upon  the  plaintiff.' 

"  It  will  be  seen,  as  the  result  of  these  authorities,  that  the 
burden  is  ordinarily  upon  the  plaintiff  alleging  negligence  to 
prove  it  against  a  warehouseman  who  accounts  for  his  failure 
to  deliver  by  showing  a  destruction  or  loss  from  fire  or  theft. 
It  is  not  of  course  intended  to  hold  that  a  warehouseman,  re- 
fusing to  deliver  goods,  can  impose  any  necessity  of  proof  upon 
the  owner  by  merely  alleging  as  an  excuse  that  they  have  been 
stolen  or  burned.  These  facts  must  appear  or  be  proved  with 
reasonable  certainty.  'Kov  do  we  concur  in  the  view  that  there 
is  in  these  cases  any  real  '  shifting  '  of  the  burden  of  proof. 
The  warehouseman  in  the  absence  of  bad  faith  is  only  liable 
for  negligence.  The  plaintiff  must  in  (dl  cases,  suing  him  for 
the  loss  of  goods,  allege  negligence  and  prove  negligence.  This 
burden  is  never  shifted  from  him.  If  he  proves  the  demand 
upon  the  warehouseman  and  his  refusal  to  deliver,  these  facts 
unexplained  are  treated  by  the  courts  as  prima  facie  evidence 
of  negligence;  but  if,  either  in  the  course  of  his  proof  or  that 
of  the  defendant,  it  appears  that  the  goods  have  been  lost  by 
theft,  the  evidence  must  show  that  the  loss  arose  from  the 
negligence  of  the  -warehouseman." 

N'ational  banks  have  no  direct  legislative  authority  under  the 
National  Banking  Act,  or  by  any  special  provision  of  the 
statute,  to  invest  any  portion  of  their  capital  in  the  construction 
of  a  safe-deposit  vault,  and  equip  it  w4th  boxes  for  the  conduct 
of  such  business;  but  it  is  claimed  that  the  Comptroller  of  the 
Currency  holds  that  this  power  or  privilege  is  one  largely 
within  the  discretion  of  the  board  of  directors. 

Where  a  State  bank  organized  under  a  State  law  does  not 
avail  itself  by  a  provision  in  its  charter  with  the  power  to  con- 
duct, in  connection  with  its  business  of  banking,  a  safe-deposit 


394  Conducting  Safe  Deposit.  [ch.  xxxiv. 

business,  it  becomes  a  privilege  purely  incidental  to  that  of 
banking,  and  where  the  officers  of  such  a  banking  corporation, 
without  authority  vested  in  the  charter  of  the  bank,  conducts 
such  a  business  and  establishes  a  safe-deposit  vault  and  receives 
property  for  deposit  without  the  authority  or  knowledge  and 
consent  of  the  directors,  their  acts  are  not  within  the  scope 
of  their  authority  as  agents,  and  are  not  binding  upon  the 
corporation. 


CHAPTER  XXXV. 


BANKING  HOURS. 

§  247.  When  binding  upon  the  public. 

A  banking  corporation  can  prescribe  by  its  by-laws  reason- 
able hours  of  business  during  which  its  business  with  the  public 
shall  be  conducted. 

A  by-law  enacted  to  the  effect,  if  the  hours  prescribed  are 
reasonable,  is  binding  upon  the  general  public. 

In  the  case  of  Marshall  and  Others  v.  The  American  Express 
Company  (appeal  from  tlie  Milwaukee  Circuit  Court),  73  Am. 
Dec.  381,  the  court  says: 

"  This  term  (banking  hours)  has  acquired  a  meaning  among 
bankers  and  merchants,  but  it  is  by  no  means  uniform.  What 
are  banking  hours  in  some  places  are  not  in  others.  In  the 
city  of  Xew  York  banking  hours  are  understood  to  be  from 
ten  o'clock  a.  m.  to  three  o'clock  p.  m.  In  the  city  of  Mil- 
waukee, from  9  a.  m.  till  twelve  and  a  half  p.  m.,  and  from  two 
till  four  p.  m. 

''All  we  know  from  the  evidence  in  this  case,  in  regard  to 
banking  hours  in  Madison,  is  from  Mr.  Hill,  who  says  '  banks 
at  Madison  close  at  four  o'clock.'  But,  however,  the  term  may 
vary  as  to  time ;  what  is  understood  by  '  banking  hours,'  in  a 
technical  sense,  is  the  particular  hours  of  the  day  within  which 
the  banks  of  a  city  or  town  transact  the  usual  banking  business 
with  the  public  over  the  counter,  such  as  discounting  bills, 
receiving  deposits,  and  paying  checks,  etc.  It  is  reasonable  and 
proper  that  there  should  be  a  uniform  hour  at  wdiich  this  kind 
of  business  should  cease,  in  order  to  give  the  officers  and  agents 
of  the  bank  an  opportunity  to  write  up  the  books  and  adjust 
its  balances  for  the  day. 

When  these  banking  hours  are  uniform  and  reasonable,  the 
law  will  regard  them  in  respect  to  the  purposes  for  which  they 
are  established.  But  these  hours  only  have  reference  to  the 
intercourse  of  the  bank  ^^ath  the  public  at  large,  in  relation  to 
the  exclusive  business  of  banking.  Business  quite  as  important 
is  always  transacted  after  these  hours  have  elapsed  —  balances 

[395] 


'.'90  Baxkixg  Houks.  [cii.  xxxv. 

with  other  banks  to  be  ascertained,  cash  account  brought  np, 
and  cash  counted;  and  many  other  things  which  will  suggest 
themselves  to  the  banker,  which  are  always  done  after  '  banking 
hours,'  even  the  very  business  of  making  up  and  transmitting 
packages,  as  well  as  receiving  them;  not  only  because  it  can 
be  done  more  conveniently  after  the  business  with  the  public 
is  closed,  but  because  until  such  business  is  closed  much  of  it 
could  not  be  done. 

"  The  convenience  or  inconvenience  of  the  bank,  whether 
serious  or  not,  had  nothing  to  do  with  the  duties  of  the  defend- 
ants as  carriers." 

The  court  also  says,  in  the  further  discussion  of  this  question, 
that: 

"  It  does  not  follow  that  the  vaults  of  the  V)ank  are  neces- 
sarily closed  because  the  hour  for  doing  business  over  the 
counter  has  transpired.  Xor  are  persons  who  have  a  right  to 
transmit  messages  or  packages  to  the  bank  answerable  if  they 
chance  to  be  closed.  Therefore,  if  it  had  been  the  habit  of  the 
bank  to  receive  packages  from  the  party  and  of  the  kind  in 
question  on  the  arrival  of  the  train  after  the  hour  of  four 
o'clock  p.  m.      *     *     * 

"  The  State  Bank  at  ^ladison  had  no  more  right  to  declare 
or  insist  that  it  would  receive  no  packages  after  what  it  pleases 
to  call  '  banking  hours,'  than  has  any  merchant,  warehouseman 
or  wharfinger  a  right  to  decline  the  reception  of  a  valuable 
package  of  goods  after  a  certain  hour;  and  in  that  manner 
thrust  upon  the  carrier  the  further  continuance  of  his  extraor- 
dinary responsibility.  It  would  doubtless  be  very  convenient 
to  consignees  if  they  were  permitted  to  prescribe  rules  of  de- 
livery from  time  to  time  as  their  own  convenience  should  sug- 
gest. But  such  is  not  the  law.  It  is  true  that  it  is  competent 
for  banking  houses,  private  as  well  as  corporate,  to  establish 
rules  of  business  and  to  prescribe  the  time  within  which  its 
peculiar  business  with  the  puldic  shall  be  done.  But  this  power 
is  not  an  absolute  or  arbitrary  one.      *     *     *• 

"TVhile  it  is  proper  and  necessary  for  the  general  conven- 
ience of  all  parties  that  certain  hours  shall  be  named  within 
which  the  bank  will  receive  deposits,  pay  bills  and  drafts,  dis- 
count notes,  etc.,  it  is  neither  reasonable  nor  proper  that  the 


€11.  XXXV.]  Baxki:n"g.  397 

same  hour  shall  be  designated  for  the  transaction  of  its  other 
business." 

The  term  ''  banking  hours  "  has  reference  to  the  time  in 
which  the  ordinary  business  of  a  bank  is  to  be  done.  It  is 
competent  for  a  banking  corporation  to  prescribe  certain  bank- 
ing hours  within  which  their  peculiar  business  shall  be  done, 
but  these  hours  must  be  reasonable  and  adapted  to  their  pecu- 
liar business  with  the  public  in  general. 

"  Banking  hours  "  are  recognized  bv  the  courts  to  the  extent 
that  any  ordinary  transactions  occurring  in  the  business  of 
banking  must  be  performed  within  "  banking  hours  "  upon  that 
day. 

"While  a  bank  may  make  a  rule  that  it  will  not  receive  de- 
posits after  three  o'clock,  it  is  held  that  where  a  carrier  delivers 
a  box  of  specie  to  the  bank  after  the  hour  named  for  closing, 
it  cannot  refuse  to  accept  the  same. 

"Where  the  doors  of  the  bank  are  closed  to  all  kinds  of  busi- 
ness after  certain  reasonable  hours,  and  no  business  of  any 
nature  is  transacted  with  the  general  public,  it  may  refuse  to 
accept  express  packages,  especially  so  if  the  doors  of  the  A^auit 
are  locked  and  the  officers,  who  alone  are  authorized  to  transact 
the  business  of  the  bank,  have  left  the  place  of  business.^ 
1  Merwin  r.  Butler,  17  Conn.  138. 


CHAPTER  XXXVI. 


BANKS  LENDING  CREDIT. 

§  248.  When  prohibited  by  law. 

Banking  associations  from  the  very  nature  of  their  business 
are  prohibited  from  lending  credit.  They  cannot  for  compen- 
sation or  as  an  accommodation  for  others  become  an  accom- 
modation indorser. 

They  have  no  authority  to  become  or  obligate  the  bank  as 
a  surety  upon  a  bond  for  an  individual. 

The  president  of  a  bank  has  no  power  inherent  in  his  office 
to  bind  the  bank  by  indorsement  for  others. 

The  indorsement  or  giiaranty  of  accommodation  paper  will 
be  void  in  the  hands  of  any  person  taking  the  same  with  notice. 

In  the  case  of  National  Bank  of  Commerce  v.  Atkinson,  55 
Fed.  Rep.  471,  the  court  says: 

'^  There  is  no  doubt  but  what  the  law  is  that  a  national  bank 
cannot  loan  its  credit  or  become  an  accommodation  indorser. 
On  that  question  the  decisions  are  uniform.  It  is  also  true  that 
the  president  of  a  bank  has  no  power  inherent  in  his  office  to 
bind  the  bank  by  the  execution  of  a  note  in  its  name;  yet  the 
power  to  do  so  may  be  conferred  upon  him  by  the  board  of 
directors  either  expressly,  by  resolution  to  that  effect,  by  sub- 
sequent ratification,  or  by  acquiescence  in  transactions  of  a 
similar  nature,  and  of  which  the  directors  have  knowledge." 

In  the  case  of  Bowen  v.  ISTeedles  National  Bank,  94  Fed.  Rep. 
925,  the  circuit  judge  says: 

"  It  may  be  stated  in  general  that  no  banking  corporation 
has  the  power  to  become  a  guarantor  of  the  obligation  of 
another,  or  to  lend  its  credit  to  any  person  or  corporation, 
unless  its  charter  or  governing  statute  expressly  permits  it. 
Citing  Farmers  and  Merchants'  National  Bank  v.  Butchers 
and  Drovers'  Bank,  16  N.  Y.  125;  Morford  r.  Bank,  26  Barb. 
568;  Thompson's  Corp.  §  5721.  Under  section  5136  of  the 
Revised  Statutes,  national  banking  associations  are  given  the 
power  to  '  make  contracts '  and  '  to  exercise  by  its  board  of 

[398] 


cii.  XXXVI.]  Bankixg.  399 

directors,  or  diilv  authorized  officers  or  agents,  subject  to  law, 
all  such  incidental  powers  as  shall  be  necessary  to  carry  on  the 
business  of  banking ;  by  discounting  and  negotiating  promissory 
notes,  drafts,  bills  of  exchange,  and  other  evidences  of  debt; 
by  receiving  deposits ;  by  buying  and  selling  exchange,  coin,  and 
bullion ;  by  loaning  money  on  personal  security ;  and  by  obtain- 
ing, issuing,  and  circulating  notes  according  to  the  provisions 
of  this  title.'  There  is  in  these  provisions  no  grant  of  power 
to  guarantee  the  debt  of  another,  nor  can  such  guaranty  be 
said  to  be  incidental  to  the  business  of  banking.  It  has  been 
so  held  in  Seligman  v.  Bank,  3  Hughes,  647;  Fed.  Cas.  No. 
12,642;  :N"'orton  v.  Bank,  61  K  H.  589,  and  Bank  v.  Pirie, 
27  C.  C.  A.  171;  82  Fed.  Eep.  799." 

§  249.  Where  a  bank  may  make  a  guaranty. 

In  the  case  of  Peoples'  Bank  v.  Xational  Bank,  101  IT.  S. 
181,  the  case  is  stated  in  the  syllabus  as  follows: 

"A  made  his  promissory  note  to  his  own  order,  duly  in- 
dorsed it  to  the  order  of  B,  and  delivered  it  to  a  national  bank. 
The  latter  negotiated  it  to  B,  and  applied  the  proceeds  thereof 
t(>  the  cancellation  of  a  prior  debt  of  A.  With  the  knowledge 
and  consent  of  the  president  and  cashier,  who  were  also 
directors,  but  without  any  notice  to  or  authority  from  the 
board,  C,  one  of  the  directors  and  vice-president  of  the  bank, 
guaranteed,  at  the  time  of  the  transaction,  the  payment  of  the 
note  at  maturity  by  an  indorsement  thereon  to  that  effect  in 
the  name  and  on  the  behalf  of  the  bank.  The  note  was  duly 
protested  for  non-payment,  and  the  bank  notified  thereof.  B 
brought  this  action  against  the  bank.  Held:  1.  That  the  bank 
was  not  prohibited  by  law  from  guaranteeing  the  payment  of 
the  note.  2.  That  it  is  to  be  presumed  that  C  had  rightfully 
the  power  he  assumed  to  exercise,  and  the  bank  is  estopped  to 
deny  it.  3.  That  the  bank  by  its  retention  and  enjoyment  of 
the  proceeds  of  the  note,  rendered  the  act  of  O  as  binding 
as  if  it  had  been  expressly  authorized." 

In  the  case  of  Seeber  v.  Commercial  Xational  Bank,  77  Fed. 
Rep.  957,  it  is  held  that  a  contract  by  a  national  bank  to  in- 
demnify one  for  loss  incurred  as  surety  on  an  attachment  bond, 
is  not  void  on  the  ground  of  public  policy;  the  loss  having 
occurred,  though  the  bond  is  not  given  for  the  benefit  of  the 
bank. 


400.  Ba.nks  Lending  Ckedit.  [cii.  xxxvi. 

A  written  guaranty  of  the  payment  of  a  note  "  with  all  legal 
or  other  expenses  of  or  for  collection  "  executed  by  the  in- 
dorser  before  maturity  of  the  note,  covers  reasonable  attoniey 
fees  incurred  in  the  collection  of  the  debt.^ 

§  250.  Guaranty  of  bank  —  Acts  ultra  vires. 

The  act  of  Congress  authorizing  the  organization  of  na- 
tional banks  confers  upon  them  no  authority,  by  expressed 
terms  or  by  implication,  to  guaranty  the  payment  of  debts 
contracted  by  a  third  person  and  solely  for  his  benefit.  All 
acts  of  this  nature  executed  by  the  cashier  or  the  board  of 
directors  are  iiltra  vires.^ 

Where  the  defendant,  a  national  bank  in  California,  agreed 
v/ith  the  plaintiff  in  Xew  York  to  pay  any  checks  drawn  upon  it 
by  one  "  B."  Upon  the  faith  of  this  promise,  plaintiff  honored 
several  such  checks,  which  Avere  paid  in  the  following  man- 
ner :  Defendant  made  its  cashier's  checks  upon  the  "  C  " 
^STational  Bank  in  Xew  York,  at  which  bank  it  had  no  fund, 
and  sent  them  to  plaintiff,  at  the  same  time  sending  the  "  C  " 
K'ational  Bank  drafts  on  "  B "  to  cover  its  checks.  Later, 
certain  of  these  cashier's  checks  proved  worthless  —  the  drafts 
not  being  collectible,  and  were  not  presented  to  "  C  "  Xational 
Bank,  but  no  prejudice  to  defendant  by  reason  of  such  nonpre- 
sentment  was  shown.  Held,  the  promise  of  the  defendant 
bank  was  ultra  vires  and  void  as  to  the  plaintiff,  he  being 
chargeable,  under  the  circumstances,  "with  notice  of  the  fact 
giving  rise  to  the  illegality.^ 

1  INIoGliee  r.  Importers  &  Traders'  3  Bowen  v.  Needles  Nat.  Bank,  87 
Nat.   Bank,  93  Ala.   192.                            Fed.  Rep.  430. 

2  Commercial  Nat.  Bank  r.  Pirie, 
82  Fed.  Rep.  799. 


CHAPTER  XXXVII. 


NOTES  AND  ACCEPTANCES. 

§251.  When  note  made  payable  at  bank  —  Duty  of  bank. 

The  general  rule  laid  down  in  the  case  of  Indig  v.  National 
City  Bank,  SO  X.  Y.  100,  is  that  when  the  note  of  a  de- 
positor is  made  payable  at  a  bank  where  he  does  business,  that 
when  the  note  falls  due,  if  the  bank  is  in  funds,  it  is  the  duty 
of  the  bank  to  pay  the  same. 

It  is  the  duty  of  the  bank  to  pay  checks  when  drawn 
upon  it  by  its  depositors,  but  unless  the  maker  of  the  note  has 
authorized  the  bank  to  pay  the  same  when  presented,  the  later 
and  better  rule  is  that  the  bank  is  not  bound  to  do  so,  neither 
is  it  the  duty  of  the  bank  to  pay  the  same. 

If  the  bank  is  made  the  agent  of  the  maker  of  the  note,  the 
authority  exists,  and  then  it  is  bound  to  pay  a  note  when  pre- 
sented, if  it  is  in  funds. 

In  Illinois  the  Supreme  Court  in  the  case  of  Ridgely  Bank 
V.  Fatten  &  Hamilton,  109  111.  479,  says  that  a  banker  has  no 
right  to  apply  money  on  deposit  to  the  payment  of  a  note  of 
the  depositor  payable  at  the  bank  without  the  order  or  check 
of  the  depositor.  Citing  Wood  &  Co.  v.  Merchants'  Savings 
Loan  and  Trust  Co.,  41  111.  267. 

In  Indiana,  in  the  case  of  the  Second  National  Bank  of 
Lafayette  v.  Hill  et  ah,  75  Ind.  223,  the  courts  holds  that: 

Syllabus. 

"  In  an  action  by  a  bank  upon  a  promissory^  note,  the  sure- 
ties answered,  alleging  that  the  note  was  given  for  money 
borrowed  from  the  bank  by  their  principal,  and  that  they 
were  sureties  only  therein,  which  the  bank  knew  at  the  time 
the  note  was  executed ;  that  prior  to  its  maturity  the  principal 
consented  and  directed  the  bank  to  allow  and  pay  the  note 
after  its  maturity,  out  of  his  general  deposits  therein;  that 
after  its  maturity  the  bank  had,  of  the  funds  of  the  principal 
on  deposit,  more  than  sufficient  to  pay  the  note  and  interest ; 
that  the  bank  failed  to  apply  the  funds  of  the  principal  so 
26  [4011 


402  XoTEs  AXD  Acceptances.  [ch.  xxxvii. 

deposited  in  payment  of  the  note,  bnt  subsequent  to  its  ma- 
turity suffered  the  principal  to  check  his  funds  out  of  the 
bank.    Wherefore,  they  claim  that  they  are  released. 

"  Held,  on  demurrer,  that  the  answer  was  insufficient. 

"  Held,  also,  that  the  failure  of  the  bank  to  apply  to  the 
payment  of  the  note  the  money  which  the  principal  had  on 
general  deposit  in  the  bank  at  and  after  the  maturity  of  the 
note  did  not  discharge  the  sureties, 

"  Held,  also,  that  the  bank  had  a  right  to  apply  the  money 
which  the  principal  had  on  general  deposit  after  the  maturity 
of  the  note,  to  its  payment,  with  or  without  j;he  consent  or 
direction  of  the  principal,  but  that  the  checks  subsequently 
dra\\ii  by  him  were  a  withdrawal  of  his  previous  directions 
upon  the  subject." 

A  leading  case  and  one  reviewing  many  of  the  authorities 
discussing  this  subject,  is  the  case  of  Grissom  v.  The  Bank, 
87  Tenn.  350.  A  summary  of  the  court's  opinion  in  this  case 
may  be  stated  as  follows : 

"  The  fact  that  a  note  is  made  payable  at  a  bank  does  not 
(without  more)  confer  authority  upon  the  bank  to  pay  the 
note  when  due  to  and  presented  by  a  third  person  out  of  funds 
standing  on  deposit  to  the  credit  of  the  maker  at  maturity  of 
the  note.^' 

Custom. 

"  Custom  to  authorize  such  payment  must  be  general,  uni- 
form, and  certain  and  known  to  both  parties.  They  are  pre- 
sumed in  such  case  to  contract  with  reference  to  such  custom." 

§  252.  Set-off  —  Estoppel. 

"  Where  a  bank  has  without  authority  paid  a  note  on  which 
its  depositor  is  accommodation  indorscr,  it  is  estopped  to  claim 
such  payment  as  is  set  off  against  the  depositor,  where  by  rea- 
son of  the  bank's  failure  to  give  notice  of  the  payment,  the 
indorser  is  deprived  of  effectual  recourse  against  his  principal." 

In  the  case  of  Bank  v.  Peltz,  Appellant,  176  Pa.  St.  513, 
the  court  lays  down  a  modified  or  optional  rule  and  states  it 
as  follows: 

"  The  bank  may  apply  the  deposit  to  the  payment  of  the 
note,  yet  it  is  not  in  general  bound  to  do  so,  but  where  the 


cii.  XXXVII.]  Baxkixg.  403 

bank  holds  funds  of  the  maker  when  the  note  matures  it  is 
bound  to  consider  the  interests  of  the  indorser  or  sureties,  and 
if  it  allows  the  maker  to  withdraw  his  funds  after  protest  and 
the  indorsers  are  losers  thereby,  the  bank  is  liable  to  them." 

The  court  then  proceeds  to  justify  its  opinion  and  says : 
''  The  reason  of  the  rule  is  that  the  maker  is  the  principal 
debtor  and  liable  to  all  the  indorsers  whose  undertaking  is  to 
pay  if  he  does  not." 

The  court,  in  further  discussion  of  this  question,  says: 
"  While  a  bank  which  is  the  holder  of  a  note  and  has  on  de- 
posit at  the  time  of  maturity  a  sum  to  the  credit  of  any  party 
liable  to  it  on  the  note  sufficient  to  pay  it,  and  not  previously 
appropriated  by  the  depositor  to  be  held  for  a  diiferent  pur- 
pose, may  apply  the  deposit  to  the  payment  of  the  note,  yet 
it  is  not  in  general  bound  to  do  so.  The  cases  where  the  right 
becomes  a  duty  on  the  part  of  the  bank  rest  on  the  special 
equity  of  the  party,  usually  the  indorser,  to  have  the  payment 
enforced  against  the  depositor  as  the  one  primarily  liable. 
Commercial  Xational  Bank  v.  Ilenninger,  105  Pa.  St.  496. 
And  even  in  these  cases  all  the  circumstances  enumerated  must 
exist.  Thus  the  deposit  must  be  sufficient  at  the  time  of  ma- 
turity of  the  note.  Subsequent  deposits  will  not  raise  the 
duty.  People's  Bank  v.  Legrand,  103  Pa.  St.  309 ;  First  Xa- 
tional Bank  v.  Shreiner,  110  Pa.  St.  188.  And  the  deposit 
must  not  have  been  previously  appropriated  to  any  other  use. 
Cases  cited,  supra,  and  German  Xational  Bank  v.  Foreman, 
138  Pa.  St.  474,  Avhere  the  principle  was  conceded,  though  an 
exception  of  doubtful  coiTectness  was  made  against  a  mere 
notice  from  the  depositor  not  to  pay,  unaccompanied  by  a 
specific  appropriation  to  a  diiferent  purpose.  And  lastly  the 
deposit  must  be  to  the  credit  of  the  partv  primarily  liable. 
The  rule  is  thus  stated  by  our  brother,  "Williams,  in  the  latest 
case  on  the  subject.  Mechanics'  Bank  v.  Seitz,  150  Pa.  St.  632. 
'  The  general  rule  is  well  settled  that,  while  the  bank  may  ap- 
propriate funds  in  its  hands  belonging  to  any  previous  party 
to  the  note,  to  the  payment  of  it,  *  *  *  yet  it  is  not  bound 
to  do  so.  The  note  may  be  treated  as,  in  effect,  an  order  or 
check  authorizing  the  bank  to  apply  the  deposit  to  the  pav- 
ment,  but  the  deposit  is  not  payment  in  law.  ^-^  *  *  B\it 
where   the   bank   holds   funds   of  the   maker   when   the   note 


404  XOTKS  A^v'D  ACCEPTA^'CES.  [CH.  XXXVII. 

matures,  it  is  bound  to  consider  the  interests  of  the  indorsers 
or  sureties,  and  if  it  allows  the  maker  to  withdraw  his  funds 
after  protest,  and  the  indorsers  are  losers  thereby,  the  bank  is 
liable  to  them.  The  reason  of  this  rule  is,  that  the  maker  is 
the  principal  debtor  and  liable  to  all  the  indorsers,  whose  un- 
dertaking is  to  pay  if  he  does  not.'  " 

This  subject  is  again  discussed  in  the  case  of  Xational 
Mahaime  Bank  v.  Peck,  127  Mass.  298. 

Where  the  rule  we  believe  is  correctly  stated.  The  court,  in 
its  opinion,  says:  "Money  deposited  in  a  bank  does  not  re- 
main the  property  of  the  depositor,  upon  which  the  bank  has 
a  lien  only,  but  it  becomes  the  absolute  property  of  the  bank, 
and  the  bank  is  merely  a  debtor  to  the  depositor  in  an  equal 
amount.  Foley  v.  Hill,  1  Phil.  399  and  2  TI.  L.  Cas.  28; 
Bank  of  Republic  v.  Millard,  10  Wall.  152;  Carr  v.  Xational 
Security  Bank,  107  Mass.  45.  So  long  as  the  balance  of  ac- 
count to  the  credit  of  the  depositor  exceeds  the  amount  of  any 
debts  due  and  payable  by  him  to  the  bank,  the  bank  is  bound 
to  honor  his  checks  and  liable  to  an  action  by  him  if  it  does  not. 
When  he  owes  to  the  bank  independent  debts  already  due  and 
payable,  the  bank  has  the  right  to  apply  the  balance  of  his  gen- 
eral account  to  the  satisfaction  of  any  such  debts  of  his.  But 
if  the  bank  instead  of  so  applying  the  balance,  sees  fit  to  allow 
him  to  draAv  it  out,  neither  the  depositor  nor  any  other  person 
can  afterward  insist  that  it  should  have  been  so  applied.  The 
bank  being  the  absolute  owner  of  the  money  deposited  and 
being  a  mere  debtor  to  the  depositor  for  his  balance  of  account, 
holds  no  property  in  which  the  depositor  has  any  title  or  right 
of  which  a  surety  on  an  independent  debt  from  him  to  the  bank 
can  avail  himself  by  way  of  subrogation,  as  in  Baker  v.  Briggs, 
8  Pick.  122,  and  American  Bank  v.  Baker,  4  Met.  164,  cited 
for  the  defendant.  The  right  of  the  bank  to  apply  the  balance 
of  account  to  the  satisfaction  of  such  a  debt  is  rather  in  the 
nature  of  a  set-off,  or  of  an  application  of  payments,  neither  of 
which,  in  the  absence  of  express  agreement  or  appropriation, 
will  be  required  by  the  law  to  be  so  made  as  to  benefit  the 
surety.  Glazier  v.  Douglass,  32  Conn.  393 ;  Field  v.  Holland, 
6  Cranch,  8,  28 ;  Brewer  v.  Knapp,  1  Pick.  332  ;  Upham  v. 
Lefavour,  11  Met.  174;  Bank  of  Bengal  v.  Radakissen  Mitter, 
4  Moore  P.  C.  140,  162. 


cii.  XXXVII.]  Baxkixg.  4:05 

''  The  general  rule  accordingly  is  that  where  moneys  drawn 
out  and  moneys  paid  in  or  other  debts  and  credits  are  entered 
by  the  consent  of  both  parties  in  the  general  banking  account 
of  a  depositor,  a  balance  may  be  considered  as  struck  at  the 
date  of  each  payment  or  entry  on  either  side  of  the  account, 
but  where  by  express  agreement  or  by  a  course  of  dealing 
between  the  depositor  and  the  banker,  a  certain  note  or  bond 
of  the  depositor  is  not  included  in  the  general  account,  any 
balance  due  from  the  banker  to  the  depositor  is  not  to  be  ap- 
plied in  satisfaction  of  that  note  or  bond,  even  for  the  benefit 
of  a  surety  thereon,  except  at  the  election  of  the  banker.  Clay- 
ton's Case,  1  Meriv.  572,  610;  Bodenham  v.  Purchas,  2  B.  & 
Aid.  39,  45 ;  Simpson  v.  Ingham,  2  B.  &  C.  65 ;  S.  C,  3  D.  & 
Pt.  2-19;  Pemberton  v.  Oakes,  4:  Russ  154,  168;  Peas©  v.  Hirst, 
10  B.  &  C.  122  ;  S.  C,  5  Man.  &  Eyl.  88 ;  Henniker  v.  Wigg, 
Dav.  &  Meriv.  160,  171;  S.  C,  4  Q.  B.  792,  795;  Strong  v. 
Foster,  17  C.  B.  201 ;  Martin  v.  Mechanics'  Bank,  6  Ilarr.  &  J. 
235,  244;  State  Bank  v.  Armstrong,  4  Dev.  519;  Commercial 
Bank  v.  Hughes,  17  Wend.  94;  Allen  v.  Culver,  3  Den.  284, 
291;  Xewburgh  Bank  v.  Smith,  66  X.  Y.  271;  Yoss  v.  Ger- 
man-American Bank,  83  111.  599."  . 

§  253.  Makers  right  of  set  off. 

While  the  rule  is  that  the  bank  may  apply  the  deposit  in 
payment  of  the  matured  note,  especially  when  authorized  so 
to  do,  the  maker  of  a  note  can  compel  it  to  do  so,  and  an  as- 
signment by  the  bank  of  a  note  before  its  maturity  does  not 
prevent  the  depositor  and  maker  of  the  note  from  claiming 
the  right  of  set-off.^ 

§  254.  Special  deposit,  when  accepted  to  pay  note. 

When  a  customer  makes  a  special  deposit  in  a  bank,  of  funds 
for  the  purpose  of  paying  notes  made  by  him,  and  which  may 
be  from  time  to  time  presented  to  the  bank  for  payment,  it 
becomes  a  deposit  which  cannot  be  used  by  the  bank  for  any 
other  purpose.  Such  funds  are  held  by  the  bank  more  in  the 
nature  of  trust  funds  and  must  be  applied  as  directed  by  the 
debtor.     A  special  deposit  cannot  be  used  to  pay  a  note  due  the 

1  McCagg  c.  Woodman,  28  111.  84. 


406  XoTEs  AXD  Acceptances,  [cii,  xxxvii. 

bank  unless  when  the  deposit  was  made  it  was  understood  and 
intended  to  be  used  for  such  purposes.^ 

§  255.  Money  deposited  with  bank  to  pay  note  is  not  payment. 

In  the  ease  of  St.  Paul  Xational  Bank  v.  Cannon,  48  X.  W. 
Rep.  520,  it  appears  that  money  due  on  a  note  which  was 
payable  at  a  certain  bank  was  deposited  in  the  bank  at  the 
maturity  of  the  note  with  directions  to  pay  it ;  held,  that  the 
deposit  is  not  a  payment.  The  court,  in  discussing  the  question, 
says: 

"  It  is  alleged  in  the  answer  that  at  maturity  Loeffelholz  did 
pay  the  note  at  the  Bank  of  Minnesota  ''  by  depositing  and 
leaving  with  said  bank  a  sum  of  money  sufficient  to  pay  said 
note  and  mortgage,  and  then  and  there  instructing  said  bank 
to  pay  said  money  to  the  la'v^'ful  owner  thereof." 

"  It  is  admitted  that  the  money  was  paid  to  the  Bank  of 
Minnesota  by  Loeffelholz.  The  note  was  not  at  the  bank,  but 
was  then  held  by  the  plaintiff  as  collateral  security.  Although 
the  note  was  by  its  terms  payable  at  the  Bank  of  Minnesota, 
the  mere  depositing  the  money  in  that  bank,  in  order  that  it 
might  be  applied  in  pa^^Ilent  of  the  note,  did  not  constitute 
a  payment  of  it.  In  such  a  case  the  bank  receiving  the  money 
is  to  be  regarded  as  the  agent  of  the  person  paying  it,  the 
holder  of  the  note  not  having  deposited  it  at  the  designated 
place  for  collection  or  pa^Tuent.  The  law  is  well  settled. 
Adams  v.  Improvement  Commission,  44  X.  J.  L.  638 ;  Hill 
V.  Place,  48  X\  Y.  520;  Caldwell  v.  Cassidy,  8  Cow.  271; 
Gas  Co.  V.  Pinkerton,  95  Pa.  St.  62 ;  "Wood  v.  Savind,  etc., 
Co.,  41  in.  267;  Caldwell  v.  Evans,  5  Bush  (Ky.),  380;  Ward 
V.  Smith,  7  Wall.  447;  Freeman  v.  Curran,  1  Minn.  169  (Gill, 
144);  3  Rand  Com.  Paper,  §  1119,  and  cases  cited." 

§  256.  Application  of  deposit   on  note. 

It  has  been  held  that  where  a  bank  holds  a  note  of  a  de- 
positor it  is  not  bound  to  immediately  upon  the  maturity  of 
the  note  apply  the  funds  of  the  depositor  in  payment  of  the 
same. 

A  bank  having  money  on  open  account  to  the  credit  of  a 
maker  of  a  note,  which  it  holds,  is  not  obliged  to  apply  the 

2Stebbins   r.   Lardner,   48   N.   W.  847:    Hall   v.   Marston.   11    Mass.   575. 


CH,  XXXVII.]  Bankixg.  407 

money  thereon  before  bringing  suit,  even  if  it  has  the  right 
to  make  such  application  without  consent.^ 

Where  the  depositor  has  authorized  the  bank  to  pay  his  note 
when  presented  and  the  bank  acting  under  such  directions  pays 
the  same,  applying  all  of  the  funds  to  his  credit  then  in  the 
bank  and  advancing  an  amount  in  addition  thereto  necessary 
to  pay  the  same,  the  amount  so  advanced  is  like  an  over- 
draft and  may  be  recovered  from  the  maker  of  the  note. 

3  Doctor  and  others  v.  Riedel  and  another,  96  Wis.  158. 


CHAPTER  XXXVIII. 


COLLECTIONS  BY  BANKS. 

§  257.  Subject  treated  —  Duty  of  bank. 

In  the  presentation  and  treatment  of  this  subject  the  object 
directly  in  view  is  to  give  general  direction  and  the  rules  of 
law  as  to  the  duties  and  liabilities  of  the  bank  in  accepting  and 
making  collections. 

If  it  receives  the  collection  it  becomes  responsible  and  must 
return  the  same  or  the  proceeds  derived  therefrom,  or  render 
a  good  and  sufficient  cause  in  failing  to  do  either. 

The  first  question  presented  to  the  banker  after  receiving 
the  collection,  is  to  determine  what  are  his  duties.  This  is 
established  by  the  indorsement  and  instructions  accompanying 
the  collection. 

§  258.  Kelationship  existing  between  the  parties. 

As  between  the  parties,  a  deposit  of  commercial  paper  for 
collection,  and  the  bank  receiving  it,  the  position  is  held,  by 
a  number  of  leading  authorities  to  be  that  of  bailor  and  bailee. 

This  position,  however,  is  by  many  of  the  courts  denied,  and 
the  relationship  arising  by  the  deposit  of  commercial  paper 
with  a  bank  for  collection,  is  held  to  be  that  of  principal  and 
agent. 

The  first  question  presented  to  the  banker  by  the  deposit  of 
commercial  paper  for  collection,  is  the  practical  one :  '■  How 
are  collections  received  ?  " 

-  The  contract  entered  into  between  the  parties  at  the  time 
of  receiving  the  collection,  which  prescribes  the  duties  of  the 
collecting  bank,  governs  and  establishes  their  relationship. 

A  colloction  may  come  into  the  possession  of  the  bank  either 
by  the  owner  personally  presenting  the  same  or  it  may  be  re- 
ceived through  the  mail  from  a  person  or  bank  transmitting 
the  same.  In  either  case,  when  received  by  the  bank,  the  first 
duty  of  the  bank  is  to  scutinize  every  such  instrument  carefully 
before  its  entry  upon  the  bank's  collection  register. 

[408] 


cii.  xxxviii.]  Baxkixg.  409 

The  jnirpose  of  this  close  scrutiny  is  to  determine  if  pos- 
sible whether  the  note  or  instrument  has  been  disfigured  or 
in  any  way  changed  after  its  issue  by  the  drawer.  If,  upon 
examination  (the  collection  being  a  note),  it  appears  that  it  is 
irregular,  it  should  not  be  accepted  and  entered  upon  the  col- 
lection register. 

If  notes  or  collections  are  presented  by  strangers  they  should 
be  held  for  investigation  l)efore  acceptance  and  entry  and  at 
the  time  and  before  the  acceptance  they  must  be  properly 
indorsed. 

§  259.  Indorsement. 

Tlie  language  used  controls,  governs  and  directs  the  bank 
and  establishes  its  relationship  with  the  owner  of  the  paper. 
The  form  of  the  indorsement  either  makes  the  bank  a  bailee 
of  the  collection  or  an  agent  representing  the  o^\Tier. 

In  commercial  law  an  indorsement  is  defined  to  be  ''that 
w'hich  is  written  on  the  back  of  the  instrument  in  writing  and 
Avhicli  has  relation  to  it." 

The  indorsement  does  not  necessarily  have  to  be  made  upon 
the  back  of  the  instrument.  It  may  be  made  upon  the  face 
of  the  instrument  and  this  does  not  in  any  way  affect  or  destroy 
its  legality. 

The  indorsement  is  made  primarily  for  the  purpose  of  trans- 
ferring the  rights  of  the  holder  of  the  instrument  to  the  bank. 

It  is  sometimes  made  for  additional  security,  and  conse- 
quently there  are  several  kinds  of  indorsements.  They  are 
defined  as  follows: 

"  First.  An  indorsement  in  full  or  a  special  indorsement  is 
one  in  which  mention  is  made  of  the  name  of  the  indorsee. 

"  Second.  A  conditional  indorsement  is  one  made  separate  to 
some  condition,  without  the  performance  of  wdiich  the  instru- 
ment will  not  be  or  remain  valid. 

"  Third.  A  blank  indorsement  is  one  in  which  the  name  of 
the  indorser  only  is  written  upon  the  instrument. 

"  Fourth.  A  qualified  indorsement  is  one  which  restrains  or 
limits  or  qualifies  or  enlarges  the  liability  of  the  indorser. 

"  Fifth.  A  restrictive  indorsement  is  one  which  restrains  the 
negotiability  of  the  instrument  to  a  particular  person  or  for  a 
particular  purpose." 


410  Collections  by  Banks,  [ch,  xxxviii. 

The  note  or  instrument  bearing  an  indorsement  which  may 
be  one  of  the  above  described,  the  bank  receiving  the  same 
should  examine  the  indorsements  carfully  and  mark  on  each 
note  the  date  of  its  maturity.  This  is  very  important,  for  if 
the  due  date  of  the  note  should  be  entered  or  marked  a  day 
too  late,  the  drav^er  failing  to  pay,  the  bank  would  be  held  by 
the  error,  as  the  notice  of  protest  to  the  indorser  would  be  too 
late  to  hold  him. 

The  notes  after  being  "  timed,"  as  stated,  are  recorded  or 
should  be  recorded  in  what  is  known  as  the  "  collection  regis- 
ter," and  usually  from  this  book  the  notes  are  copied  into  the 
''  tickler." 

A  bank  may  have  what  is  called  a  "  foreign  collection  regis- 
ter," in  which  all  notes,  checks  or  drafts  which  are  payable  in 
another  place  are  registered. 

The  collection  having  been  duly  indorsed,  and  the  bank 
receiving  and  accepting  it,  assumes  the  duties  imposed  upon  it 
by  law  to  undertake  to  make  the  collection. 

The  bank,  as  previously  stated,  is  governed  as  to  its  duty, 
as  to  the  treatment  of  the  instrument  by  the  nature  of  the 
indorsement,  and  the  law  which  imposes  certain  obligations 
upon  it. 

§  260.  Nature  of  relationship  between  the  parties. 

As  previously  stated,  when  a  collection  is  received  and  ac- 
cepted by  the  bank,  the  relationship  between  the  parties  is  fixed 
by  the  indorsement  of  the  instrument.  In  such  a  case  the  law 
defines  the  duty  of  the  bank. 

A  special  agreement  may  be  entered  into  at  the  time  of  the 
acceptance  of  the  collection  specifically  defining  by  instructions 
the  duty  of  the  bank,  which  agreement,  in  relation  to  the  col- 
lection, must  be  strictly  complied  mth. 

§  261.  When  a  bank  becomes  bailee. 

A  bailment,  as  defined  by  Professor  Joel  Parker,  "  is  a  de- 
livery of  something  of  a  personal  nature  by  one  party  to 
another,  to  be  held  according  to  the  purpose  or  object  of  the 
delivery,  and  to  be  returned  or  delivered  over  when  that  pur- 
pose is  accomplished." 


CH.  XXXVIII.]  Banking.  411 

A  bailment  is  generally  defined  as  a  deposit  or  commission 
without  recompense. 

A  bank  does  not  usually,  however,  perform  collections 
gratuitously;  and  the  courts  do  not  construe  and  regard  the 
undertaking  of  a  bank  to  collect  commercial  paper  gratuitously. 

The  United  States  Circuit  Court  of  Appeals,  discussing  this 
questions,  says :  "  AVhere  the  statement  of  facts  shows  that  a 
city  treasurer  deposited  checks  in  the  bank  indorsed  by  him 
for  deposit,  and  the  checks  were  immediately  credited  to  him, 
but  had  no  agreement  that  his  checks  should  be  treated  as 
cash,  or  that  he  could  draw  against  them  before  collection,  and 
the  bank  became  insolvent  before  the  checks  were  collected, 
and  their  proceeds  passed  into  the  hands  of  the  receiver,  held, 
that  no  title  passed  to  the  bank,  except  as  a  bailee,  and  that 
the  depositor  was  entitled  to  the  proceeds."^ 

A  bank  becomes  a  bailee  when  it  is  accustomed  to  keep 
securities,  whether  authorized  to  do  so  by  its  charter  or  not, 
and  is  held  liable  for  their  loss  by  gross  negligence. 

A  bank  becomes  a  bailee  when  it  receives  personal  property, 
agreeing  with  or  without  a  consideration  to  keep  the  property 
and  return  it  to  its  bailor,  and  is  liable  for  gross  negligence 
when  the  keeping  of  the  property  is  gratuitous,^ 

Bailment  may  include  the  performance  of  services  upon  the 
part  of  the  bailee,  as,  for  example:  A  delivery  of  a  thing  (a 
negotiable  instrument)  in  trust  (to  a  bank)  upon  a  contract 
expressed  or  implied  that  it  collect  the  same.  If  the  bank 
accepts  the  note  only  for  collection,  it  becomes  a  bailee  of  the 
instrument  and  must  execute  the  trust,  and,  if  possible,  make 
collection  of  the  paper,  for  which  the  court  Avill  allow  it  a 
reasonable  compensation. 

The  bank  is  a  bailee  until  the  note  is  collected.  When  the 
position  changes,  and  after  collection,  the  proceeds  or  funds, 
when  authorized  by  the  owner,  may  be  placed  to  the  credit  of 
the  owner  of  the  collection,  who  then  becomes  a  depositor  of 
the  proceds,  and  the  bank  a  debtor  to  him  for  such  proceeds. 

A  bailment  being  defined  strictly  is  the  acceptance  of  per- 
sonal property  to  be  held  according  to  the  purpose  or  object 

1  Beal,  Receiver,  v.  City  of  Sonier-  2  Edwards  on  Bailment,  §  78. 

ville,  50  Fed.  Rep.  647. 


412  Collections  by  Banks.  [cii.  xxxviii. 

of  the  delivery  and  returned  again  \\hon  that  purpose  is 
accomplished. 

The  placing  of  a  nofe  for  collection  with  a  bank  where  the 
indorsement  is  a  restrictive  one,  for  example,  "  Endorsed  for 
collection,"  the  placing  of  the  note  and  acceptance  bv  the  bank 
i?-  held  to  be  a  bailment  of  the  instrument.  The  duty  of  the 
bank,  having  accepted  the  instrument,  is  to  proceed  to  the 
collection  of  it.  If  the  bank,  under  the  instructions,  collects 
the  note,  the  proceeds  belong  to  the  owner  and  must  be  held 
by  the  bank  as  a  special  deposit  and  returned  to  the  owner 
upon  demand,  less  the  reasonable  expenses  which  may  be 
allowed  for  collection.  AVhen  the  collection  is  made  and  the 
funds  are  in  the  possession  of  the  bank,  as  before  stated,  the 
legal  position  of  the  bank  may  be  changed  from  that  of  bailee 
to  one  of  debtor;  but  the  bank  has  no  right  to  change  its 
position  and  establish  this  relationship,  unless  authorized  by 
the  owner  of  the  collection. 

If  the  indorsement  of  the  instrument,  when  delivered  to  and 
accepted  by  the  bank,  reads  as  follows :  "  Endorsed  for  col- 
lection and  credit,"  the  bank,  upon  collection  of  the  instru- 
ment, has  the  direct  authority  to  place  the  funds  so  collected 
to  the  credit  of  the  owner,  and  in  such  a  case  the  bank  may  be 
considered  the  agent  of  the  owner  and  the  position  be  changed 
by  the  nature  of  the  indorsement  of  the  instrument  from  that 
of  bailor  and  bailee  to  that  of  agent. 

The  case  of  Scott  v.  The  Ocean  Bank  in  the  City  of  Xew 
York,  23  X.  Y.  289,  seems  to  be  directly  in  point.  The  opinion 
of  the  court  is  as  follows: 

"  The  facts  found  by  the  learned  justice,  who  tried  this  case 
v.'ithout  a  jury,  do  not  justify  his  conclusions  of  law  that  the 
bill  in  question  on  the  receipt  thereof  by  the  Ohio  Life  Insur- 
ance and  Trust  Company  became,  as  between  it  and  James 
Lyell,  on  whose  account  it  was  received,  the  property  of  the 
company  and  could  be  used  by  it  as  its  other  funds  were  used. 
It  is  not  shown  nor  claimed  that  there  was  an  express  agree- 
ment between  the  company  and  Lyell  that  he  should,  on  the 
receipt  by  it  of  the  bills  remitted,  be  entitled  to  have  a  credit 
in  the  account  between  them  for  the  amount  thereof;  nor  is  it 
found  that  in  the  course  of  the  dealings  between  them  any 


cii.  XXXVIII.]  Bankixg.  413 

credit  was  in  fact  ever  given  to  him  for  any  of  such  bills  till 
the  proceeds  thereof  were  realized  and  received.  All  that  is 
found  in  relation  to  such  dealings  is  that  Lyell,  who  was  a 
hanker  at  Detroit  and  kept  an  account  with  that  company  at 
its  office  in  the  city  of  Xew  York,  made  from  time  to  time, 
hetween  June,  1857,  and  the  24tli  of  August  in  that  year, 
remittances  to  it  and  drew  drafts  upon  it;  that  he  was  a  large 
depositor  with  it  of  money  and  bills;  that  there  was  an  arrange- 
n;ent  between  him  and  it  that  he  should  be  allowed  interest 
at  the  rate  of  4  per  cent,  per  annum  on  his  average  balances, 
and  that  on  the  said  24th  day  of  August,  on  which  day  the 
company  failed  and  suspended  payment,  Lyell  had  standing 
to  his  credit  on  the  books  of  the  company  a  cash  balance  of 
$108,483.50,  exclusive  of  the  bill  in  question;  that  such  bill 
was  received  by  the  company  in  the  usual  course  of  business 
on  the  20th  day  of  August  for  account  of  Lyell,  who  had 
been  in  the  habit  of  remitting  in  the  same  way  that  this  was; 
that  the  bill  was  on  the  •  day  of  its  receipt  accepted  by  the 
drawees  on  presentation  and  returned  to  the  company,  in  whose 
possession  it  remained  till  its  transfer  to  the  defendant  on  the 
twenty-fourth  day  of  the  same  month,  and  that  Lyell  had  at 
that  time  not  been  credited  with  said  bill  by  the  company;  but 
after  the  commencement  of  this  action  the  bookkeeper  of  the 
assignees  of  the  company,  without  the  knowledge  of  Lyell  or 
the  plaintiff,  credited  Lyell  with  the  proceeds  thereof  in  his 
account  with  the  company. 

"  The  only  other  fact  bearing  on  this  point  is  that  after 
the  stoppage  of  the  company  in  Xew  York  it  continued  to  do 
business  in  Cincinnati,  Ohio,  and  that  Lyell  drew  his  drafts  on 
it  from,  time  to  time  during  the  month  of  September,  1857, 
to  the  amount  of  $98,236.84.  This  course  of  dealing,  and  the 
arrangement  referred  to  for  the  allowance  of  interest  to  Lyell 
on  his  average  balances,  would,  it  is  conceded,  create  the  ordi- 
nary relation  of  debtor  and  creditor  between  the  company  and 
Lyell  in  respect  to  the  money  received  by  it;  but  no  inference 
can  be  legally  drawn  therefrom,  that  the  bills  so  remitted  were 
credited,  or  were  intended  to  be  credited,  as  cash  on  the  re- 
ceipt thereof,  or  that  the  company  ever  paid  or  were  bound 
to  honor  drafts  on  account  of  the  same  until  paid.  Lyell  was 
a  depositor  of  money  as  well  as  of  bills,  and  although  '  ho  made 


414  Collections  by  Banks.  [cii.  xxxviii. 

remittances  to  the  said  companv  and  drew  drafts  npon  it,'  it 
does  not  follow  from  those  facts  alone  that  the  drafts  were 
drawn  on  acconnt  of  or  were  limited  to  the  remittances,  nor 
if  thev  were,  that  thev  might  be  made  for  the  bills  remitted 
before  collection,  as  well  as  the  money.  Xo  reasons  are  dis- 
closed in  the  case  from  which  it  can  be  reasonably  inferred 
that  the  company  would  consent,  or  had  any  inducements  to 
consent  to  treat  as  cash,  and  make  itself  debtor  for,  every 
bill  that  might  be  remitted  to  it,  without  reference  to  the 
standing  and  responsibility  of  the  parties,  which  in  many  cases 
might  be  unknown,  especially  when  Lyell  himself,  as  in  the 
case  of  the  bill  in  question,  was  not  a  party  to  such  bill.  It  is 
more  reasonable  to  assume  that  it  would  at  least  reserve  the 
right  to  elect,  whether  to  give  credit  absolutely  or  not  be- 
fore the  proceeds  were  realized;  and  until  such  election  was 
made,  and  credit  was  in  fact  given  therefor,  the  bill  would  be 
held  by  it  as  the  property  of  Lyell,  and  not  its  own.  AVhen, 
therefore,  it  appears  that  the  bill  in  question  was  retained  in 
the  possession  of  the  company  after  its  acceptance,  and  that 
no  credit  had  been  given  for  it  at  the  time  it  was  passed  to  the 
defendants,  and  when  nothing  is  disclosed  in  the  whole  course 
of  dealings  between  the  parties  to  show  that  any  bill  was  ever 
credited  or  agreed  to  be  credited  in  account  before  its  col- 
lection, or  that  Lyell  ever  drew,  or  was  entitled  to  draw, 
iipon  the  company,  or  that  it  was  bound  to  accept  drafts  other- 
wise than  upon  and  for  fupds  actually  received  in  cash,  it 
must  be  considered  that  the  company  at  the  time  of  the  trans- 
fer stood  in  the  relation  of  agents  for  its  collection  merely. 
There  is  no  ground  based  on  those  dealings  (and  no  other  is 
claimed),  for  the  conclusion  that  the  ordinary  relation  of 
debtor  and  creditor  between  the  company  and  Lyell,  in  re- 
lation to  the  bill  in  question,  existed,  or  that  it  had  become  as 
between  them  the  property  of  the  company.  LyeU  consequently 
continued  to  he  the  owner  of  it  at  the  time  of  its  transfer,  and 
the  defendants  never  acquired  any  right  to  it  as  against  him  or 
the  plaintiff  icho  had  succeeded  in  his  title.  The  facts  found  by 
the  court  below  show  that  they  received  it,  with  other  securi- 
ties, to  secure  a  precedent  indebtedness  of  the  company  to 
them,  and  that  they  neither  advanced  nor  paid  any  new  con- 


CH.  XXXVIII.]  Banking.  415 

sideration  on  receipt  of  this  bill,  and  they  only  gave  credit  for 
its  proceeds  after  it  was  paid,  in  extingnishment  of  so  much  of 
the  defendant's  account  against  the  company.  The  defend- 
ants, therefore,  were  not  bona  fide  holders  thereof  for  value, 
and  are  not  entitled  to  its  proceeds  as  against  the  plaintiff.  It 
follows,  that  the  judgment  of  the  Superior  Court  at  special 
term  was  erroneous,  and  that  the  order  for  a  new  trial  was 
properly  granted,  and  the  plaintiff  under  the  stipulation  is 
entitled  to  judgment  absolute." 

The  court,  in  the  case  of  Jones  et  al.  v.  Kilbreth,  49  Ohio  St. 
413,  holds  that: 

"  When  paper  is  deposited  for  collection,  the  relation  be- 
tween the  depositor  and  bank  is  that  of  principal  and  agent. 
If  an  agent  for  that  special  purpose,  collects  or  sells  the  paper 
of  his  principal,  he  becomes  a  fiduciary,  and  w^ill  hold  the  pro- 
ceeds in  trust  for  the  principal,  and  if  the  agent  fails,  there 
\vill  be  no  reason  why  his  general  creditors  should  invade  such 
proceeds  to  satisfy  their  claims,  if  the  principal  can  trace  or 
ascertain  his  property  in  the  substituted  form.  Whether,  in 
a  given  case,  the  proceeds  have  been  sufficiently  traced  and 
identified,  must  rest  in  the  judgment  of  the  chancellor  who  is 
called  upon  to  declare  the  proceeds  subject  to  a  distinct  trust." 

The  court  here  declares  that  the  relation,  where  drafts  were 
deposited  mth  a  bank  for  collection,  is  that  of  principal  and 
agent,  and  then  contends  that  the  agent  collecting  the  funds 
holds  them  in  trust  for  his  principal  and  that  if  the  agent  fails 
while  holding  such  funds,  his  creditors  should  not  invade  such 
proceeds  to  satisfy  their  claim.  In  this  case,  drafts  were  in- 
dorsed for  "  collection,"  which  language,  under  the  theory 
that  the  relation  is  one  of  principal  and  agent,  would  allow  the 
agent  to  place  the  funds  in  the  bank  to  the  credit  of  the  owner, 
which  position  would  make  the  bank  a  debtor. 

The  language  of  the  court  seems  more  clearly  to  establish 
the  i:elation  between  the  parties  as  one  of  bailor  and  bailee. 
Yqx  the  court  holds  that  the  funds  are  trust  funds,  and  the 
law  holds  that  the  bailee  must  either  return  the  thing  bailed 
or  its  value. 

The  law  defines  the  duties  of  a  collecting  bank,  and  where 
a  special  contract  by  assignment  of  the  instrument  or  other- 


416  Collections  by  Baxks.  [cii.  xxxviii, 

wise,  in  relation  to  the  collection  is  entered  into,  the  bank  is 
bound  to  obey  instructions.^ 

§  262.  Paper  payable  at  a  specific  bank. 

Where  a  note  is  made  payable  at  a  bank  and  is  placed  or 
left  there  with  instructions  from  the  owner  to  collect  and 
credit  him,  the  bank,  after  collecting,  becomes  a  debtor  to  the 
owner  of  the  collection. 

When  the  bank  makes  the  collection  and  places  the  pro- 
ceeds to  the  credit  of  the  owner,  its  duties  and  responsibilities 
are  ended. 

AVhere  an  instrument  payable  at  a  bank  is  placed  with  it  by 
the  owner  for  collection,  the  bank  becomes  the  agent  of  the 
payee  and  is  authorized  to  receive  payment. 

If,  however,  the  note  is  payable  at  the  bank  but  is  not 
left  there  for  collection,  a  payment  to  the  bank  is  not  payment 
of  the  note.  The  bank  in  this  case  acts  as  the  agent  of  the 
payor.  The  naming  of  a  bank  as  the  place  of  payment  desig- 
nated in  a  promissory  note  does  not  create  an  agency  and  give 
the  bank  power  to  collect  the  note;  but  if  the  bank  accepts  pay- 
ment, having  no  authority  to  collect,  it  acts  only  as  agent  for 
the  payor,  and  in  receiving  the  money  and  canceling  the  note 
without  authority  first  received  from  the  payee  it  becomes 
liable  to  the  payee  in  case  of  loss.* 

A  bank  is  not  authorized  to  receive  the  money  for  the 
payee  by  reason  simply  of  the  fact  that  the  note  is  payable 
there.^ 

If  a  bank  accepts  money  in  payment  of  a  note  which  is 
made  payable  at  its  place  of  business,  it  acts  as  the  agent  of 
the  payor  and  the  money  so  received  becomes  a  special  deposit, 
and  in  case  of  loss  through  gross  negligence,  of  a  special  de- 
posit made  in  it  with  the  knowledge  and  acquiescence  of  its 
officers  and  directors,  it  becomes  liable.^ 

In  the  case  of  Bank  of  Montreal  v.  Ingerson,  10.")  Iowa,  3-10, 
it  is  held  that  where  a  bank  had  secured  its  indebtedness  to  a 
creditor  bank  by  putting  up  notes  signed  by  third  persons  and 
payable  to  and  at  debtor  bank,  that  the  debtor  bank  had  no 

.38.5;    Wingate  v.   :Mechanics'   Bank,  5  Chenev  r.  Libby,  134  I'.  S.  68. 

10  Pa.  St.  107:  Power  r.  First  Nat.  6  National   Bank   v.   Graham,    100 

Bank.   0    Mont.    2.50,  U.   S.  699. 

3  Mechanics'  Bank  r.  East,  4  Rale,  4  Ward  r.  Smith,  7  Wall.  447. 


CH.  XXXVIII.]  Banking.  417 

autlioritv  to  receive  payment  for  notes  in  the  hands  of  creditor 
bank. 

Where  a  bank  is  named  as  the  phice  of  payment  of  a  prom- 
issory note,  if  the  debtor  was  ready  at  the  time  and  place  named 
to  pay  it  and  the  bank  refused  to  accept  payment,  such  readi- 
ness is  equivalent  to  a  tender  and  an  answer  pleading  that 
fact  and  payment  of  the  money  then  due  into  the  court,  will 
be  a  bar  to  the  recovery  of  interest  and  cost  but  not  to  the 
cause  of  action.^ 

§  263.  Law  of  place  governs  relation. 

It  is  laid  down  as  a  general  rule  that  the  law  of  the  place 
of  tlie  performance  of  a  contract  for  collection  governs  it. 

In  the  case  of  Kent  v.  Dawson  Bank,  Fed.  Cas.  iSTo.  7714, 
the  court  says: 

"  The  place  of  performance  of  a  contract  is  generally  a 
controlling  consideration  by  which  to  determine  the  lex  loci 
contractus,  and  where,  as  here,  the  contract  is  both  made  in 
Xorth  Carolina  and  was  to  be  performed  there,  it  is  clear  that 
the  case  must  be  controlled  by  the  law  of  that  State."  ® 

§  264.  Usage  and  custom. 

A  custom  is  not  binding  upon  the  parties  affecting  collec- 
tions unless  it  is  general  as  to  place.  It  must  also  be  certain 
and  uniform.  It  must  be  known  to  both  parties.  It  may 
be  so  general  that  both  parties  are  presumed  to  know  it. 

A  custom  which  is  contrary  to  public  policy  cannot  prevail. 

In  the  State  of  California  the  courts  hold  that  where  one 
gives  a  draft  to  a  bank  to  collect,  he  is  held  to  have  an  im- 
pliecl  hnoidedgc  of  its  usage  in  making  collections  so  far  as  such 
usage  does  not  contravene  any  rule  of  law.^ 

In  the  case  of  Jefferson  County  Sav.  Bank  v.  Commercial 
Xat.  Bank,  39  S.  W.  338,  the  court  holds,  that  in  the  absence 
of  special  directions  where  a  principal  selects  a  bank  as  his 
collecting  agent,  he  is  bound  by  a  reasonable  usage  prevailing 
and  established  among  the  banks  at  the  place  where  the  col- 
lection is  to  be  made.     Knowledge  of  the  usage  may  not  be 

7  Hills  r.  Place,  48  N.  Y.  .'520.  9  Davis    v.    First    Nat.    Bank    of 

8  St.  N.  Bank  i'.  S.  N.  Bank,  128       Fresno,  118  Cal.  600. 
N.  Y.  26. 

27 


418  CoLLECTioisrs  BY  Banks.  [ck.  xxxviii. 

known  to  the  principal  but  as  the  law  is  applied  in  California 
he  is  bonnd  by  such  nsage. 

The  effect  of  local  nsage  and  the  question  of  reasonableness 
are  so  very  clearly  presented  in  the  opinion  of  the  conrt,  it 
is  cited  in  full: 

Opinion. 

"  This  cause  was  tried  upon  a  statement  •  of  agreed  facts. 
Those  essential  to  its  present  determination  are  as  follows,  to- 
wit:  The  complainant  and  defendant  were  coi-jiorations  en- 
gaged in  general  banking  operations  —  the  one  in  Birmingham, 
Ala.,  and  the  other  in  Nashville,  in  this  State.  They  were  at 
the  time  of  the  transaction,  out  of  which  this  controversy  arose, 
and  had  been  for  a  considerable  period  antecedent,  engaged 
in  a  mutual  correspondence,  as  the  exigencies  of  their  business 
required  or  suggested.  In  the  course  of  this  correspondence, 
the  complainant  bank,  as  owner  and  holder,  forwarded  to  the 
defendant  bank  for  collection,  a  note  for  $940,  dra^^^l  by 
Loventhal  &  Son,  to  the  order  of  and  indorsed  by  J.  C.  Marks 
&  Co.,  and  also  a  draft  for  $1,352,  drawn  by  J.  C.  Marks  & 
Co.,  and  accepted  by  Sulzbacker  Bros.,  both  due  and  payable 
on  Saturday,  June  20,  1891.  At  2  p.  m.  of  the  day  of  its  ma- 
turity, the  maker  of  the  note  and  the  acceptor  of  the  draft 
tendered  in  pajTnent  thereof,  to  the  teller  of  the  Commercial 
iN'ational,  their  checks  for  the  respective  amounts  due  thereon, 
drawn  on  and  properly  certified  by  the  Nashville  Savings. 
Bank  (a  banking  corporation  of  good  standing  in  Nashville) ; 
and  these  checks  were  accepted  by  this  officer  of  the  defend- 
ant, and  the  note  and  draft,  after  being  stamped  "  paid,"  were 
delivered  into  the  hands  of  the  parties  respectively  entitled  to 
them.  This  was  done  in  accordance  with  a  well-established 
usage  or  custom  of  the  various  banks  of  Nashville.  The  checks 
thus  received  were  carried  over  to  Monday,  June  22d,  on  which 
day,  at  the  hour  of  11  a.  m.,  they  were  presented  to  the  Nash- 
ville Savings  Bank  for  payment,  this  being  the  day  and  the 
hour,  according  to  the  custom  and  usage  of  the  banks  of  Nash- 
ville, for  their  presentment.  These  checks  were  left  with  the 
Nashville  Sa^nngs  Bank  for  examination,  according  to  another 
custom  or  usage  of  these  banks,  and  at  2  p.  m.,  of  June  2 2d, 
they  were  returned  unpaid  to  the  defendant  bank.     At  that 


cii.  XXXVIII.]  Banking.  419 

hour  the  Xashville  Savings  Bank  closed  its  doors,  and  the 
Commercial  Xational  Bank  at  once  caused  the  checks  to  be 
presented  and  protested  for  non-payment.  It  is  agreed  that 
the  Jefferson  County  Savings  Bank  had  no  nowledge  of  any 
of  these  local  customs  or  usages  of  the  banks  of  Xashville,  and 
was  igniorant  of  the  methods  pursued  by  the  defendant  bank 
in  regard  to  this  paper,  until  informed  thereof  by  subsequent 
correspondence.  Efforts  made  to  collect  the  amount  of  these 
checks  out  of  the  drawers  having  proved  abortive,  the  result 
is  that  the  draft  and  note  have  been  wholly  lost  to  their  owner. 
The  bill  in  this  cause  seeks  a  decree  against  the  Commercial 
National  Bank  covering  this  loss,  upon  the  ground  that  it  had 
no  right,  in  the  absence  of  express  authority,  to  receive  in  pay- 
ment of  this  paper  anything  but  money,  and  tnat  it  cannot 
excuse  itself  from  liability  for  doing  otherwise,  by  setting  up 
a  local  custom  or  usage  of  which  the  complainant  was  wholly 
ignorant.  The  Court  of  Chancery  Appeals  held  to  this  view, 
and  accordingly  entered  a  decree  in  favor  of  complainant  for 
the  full  amount  of  the  note  and  draft,  with  interest  added. 

"  In  this  decree  there  was  error.  The  rule  which  that  court 
invokes  as  decisive  of  this  case  —  that  is,  that  an  agent,  in  the 
want  of  express  authority,  cannot  accept  anything  in  discharge 
of  the  principal's  debt  except  money  —  is  well  settled,  and 
has  been  frequently  announced  in  such  cases  as  Walker  v. 
Walker,  5  HeisJ^.  425,  but  it  does  not  control  in  a  case  like  the 
present.  A  principal  who  selects  a  bank  as  his  collecting 
agent,  thus  availing  himself  of  the  facilities  which  it  holds  out, 
in  the  absence  of  special  directions,  is  bound  by  any  reasonable 
usage  prevailing  and  established  among  the  banks  at  the  place 
where  the  collection  is  made,  without  regard  to  his  knowledge 
or  want  of  knowledge  of  its  existence.  Sahlien  v.  Bank,  90 
Tenn.  221,  16  S.  W.  Eep.  373;  Howard  v.  Walker,  92  Tenn. 
452,  21  S.  W.  Rep.  897.  This  rule  regailating  the  relations 
of  collecting  banks  to  parties  who  take  advantage  of  the  means 
which  they  offer  in  this  respect,  is  founded  on  sound  reason. 
Every  business  man  knows  that  in  the  constantly  increasing 
volume  and  variety  of  banking  transactions,  the  larger  number 
of  which  are  settled  or  disposed  of  by  a  simple  exchange  of 
credits,  methods  have  been  adopted  bv  bankers  to  economize 
labor,  reduce  risks,  and  simplify  dealings  with  one  another, 


420  COLLECTIOXS  BY  EaXKS.  [cII.  XXXVIII. 

and  "with,  their  customers.  Some  of  these  methods  are  of  a 
general  character,  while  others  are  dictated  by  local  con- 
venience or  necessity.  That  these  methods  prevail  is  a  fact  of 
snch  public  notoriety  that  no  business  man  can  well  affect  to  be 
ignorant,  and  least  of  all,  a  banking  institution.  It  is  in  ^-iew 
of  this  we  have  held  that,  in  choosing  a  bank  as  a  collecting- 
agent,  the  principal  impliedly  agrees  that  the  agency  may  be 
performed  in  accordance  with  such  reasonable  methods  as 
sanctioned  by  experience,  have  ripened  into  usage,  when  such 
usage  is  not  in  contravention  of  a  general  law,  and  in  this  hold- 
ing we  are  well  supported  by  authority,  as  will  be  seen  by 
reference  to  the  cases  already  cited.  The  usages  which  were 
observed  in  the  unsuccessful  effort  to  collect  the  paper  in  con- 
troversy, and  which  are  shown  to  have  been  established  among 
the  banks  of  Xashville,  we  find  were  reasonable  and  proper. 
It  follows  that  tlie  complainant  was  conclusively  affected  by 
tliem,  although  actually  ignorant  of  their  existence.  The  de- 
cree of  the  Court  of  Chancery  Appeals  is  reversed  and  the  bill 
is  dismissed." 

Where  a  customer  has  for  a  considerable  length  of  time  been 
dealing  with  a  bank,  indorsing  to  it  for  collection,  checks, 
drafts,  etc.,  and  where  such  indorsements  were  general  and  not 
restricted,  the  bank,  it  has  been  held,  may  mingle  the  funds  so 
collected  with  the  general  funds  of  the  bank,  and  such  a  usage 
and  custom  has  been  sustained,  but  where  a  party  not  a  regular 
customer  of  the  bank  and  a  stranger  to  the  usage  and  custom 
prerailing  in  the  place,  indorses  to  the  bank  a  collection  with- 
out consideration,  the  bank  has  no  implied  authority  or  au- 
thority by  usage  and  custom,  when  such  collection  is  made 
by  it,  to  place  the  funds  with  the  general  funds  of  the  bank. 

The  funds  should  be  held  by  the  bank  as  a  collection  or  a 
special  fund  until  authorized  by  the  owner  to  be  placed  to  hia 
credit  in  the  general  funds  of  the  bank.-^^ 

§  265.  General  rule  as  to  title  of  paper. 

TJir  r/eneraJ  nilr  is  fliaf  ihc  iitjp  of  paper  deposited  with  a 
hanl'  for  collection  does  not  pass  to  it,  hut  remains  in  the 
depositor. 

The  general  ndo,  tlierefore,  sustains  the  bailment  theory. 

10  Freeman's  Bank  r.  National  Tube  Works,  l.ll  ^Mass.  413. 


cii.  XXXVIII.]  Baxkixg.  421 

In  the  case  of  the  First  National  Bank  of  Fort  Worth, 
Texas,  v.  Payne,  42  S.  W.  Rep.  736,  the  court  holds  that  where 
a  note  has  been  assigned  to  a  bank  for  collection  only,  the 
bank  cannot  recover  upon  it. 

It  is  generally  understood  that  a  mere  deposit  of  a  collec- 
tion to  a  bank  by  the  owner,  does  not  pass  the  title  or  make 
the  bank  the  purchaser  of  the  paper. 

The  general  rule  as  laid  down  by  the  Supreme  Court  in  the 
State  of  Georgia  is,  that  ''  where  a  promissory  note  was  in- 
dorsed by  the  payee  to  another  for  collection  "  for  the  account 
of  the  payee,  the  indorsee  had  such  a  legal  title  as  would  au- 
thorize him  to  bring  suit  upon  the  paper  in  his  own  name.^^ 

In  the  State  of  Iowa,  in  the  case  of  ]\Ierchants'  Xational 
Bank  v.  Mci^ulty,  36  Iowa,  229,  the  court  says: 

"  If  the  note  was  obtained  without  consideration  as  alleged, 
the  payees  could  not  recover  thereon.  The  indorsee.  Burton, 
and  the  subsequent  holder,  Hill,  constitute  the  firm  of  Burton, 
Hill  &  Company,  the  payees,  and  hence  held  the  note  subject 
to  the  same  defenses  which  might  have  been  interposed  against 
it  in  the  hands  of  the  payees.  The  plaintiff,  if  not  a  bona  fide 
purchaser  stands  in  no  better  position." 

It  is  generally  understood  between  the  parties  that  a  mere 
deposit  "  for  collection  "  does  not  make  the  bank  the  purchaser 
of  the  paper  or  relieve  the  depositor  where  credit  has  been 
given. 

There  has  been  considerable  contention  and  litigation  upon 
this  subject,  but  the  weight  of  authorities  supports  the  theory 
that  it  is  a  gratuitous  favor  and  is  not  a  banking  custom. 

In  Georgia,  a  negotiable  instrument  deposited  in  a  bank 
indorsed  "  for  collection "  remains  the  property  of  the  de- 
positor, which  supports  the  bailment  theory,  and  the  same  rule 
holds  when  the  written  indorsement  appears  unrestricted,  but 
as  a  matter  of  fact  evidence  by  express  collateral  agreement 
or  understanding  may  be  reasonably  inferred  from  the  course 
of  dealing  between  the  parties,  the  instrument  is  taken  by  the 
bank  not  as  a  purchase  but  for  collection  simply. 

Where  the  bank  gives  the  depositor  credit  for  the  amount 
of  a  negotiable  instrument  indorsed  to  it,  the  giving  of  credit 

11  Wilson  et  al.  r.  Tolson,  79  Ga.  137. 


422  CoLLECTioxs  BY  Baxks.  [ch.  xxxviii. 

is  not  conclusive  evidence  that  the  bank  had  purchased  the 
paper  and  was  not  a  mere  bailee  thereof. 

The  authorities  hold  that  where  a  depositor  is  given  credit 
upon  checks,  drafts,  and  negotiable  instruments,  indorsed  to 
the  bank  for  collection  and  he  is  allowed  to  draw  checks  against 
the  same,  but  where  such  collections  as  are  not  paid  and  are 
deducted  from  the  next  deposit,  such  a  course  of  dealing  stamps 
the  transaction  with  reference  to  the  title  to  instruments  so 
indorsed,  as  being  unmistakably  a  bailment  for  collection 
simply  and  no  greater  title  is  vested  in  the  bank.^^ 

If,  by  the  nature  of  the  transaction,  the  bank  becomes  re- 
sponsible to  the  depositor  for  the  amount  of  the  collection,  the 
title  of  the  paper  vests  in  the  bank. 

In  the  case  of  Gibson  v.  City  of  Erie,  196  Pa.  St.  7,  the 
owner  of  municipal  bonds  who  made  a  special  deposit  of  them 
"\vith  the  bank,  which  bank  was  the  agent  of  the  municipality, 
it  is  held,  he  does  not  lose  his  title  thereto  by  reason  of  the 
bank  collecting  and  paying  over  to  him  the  proceeds  of  the 
interest  coupons,  and  where  the  bank  failed  after  using  the 
money  deposited  with  it  by  the  city  for  the  payment  of  the 
principal,  held,  that  the  owner  is  not  estopped  from  recovery 
against  the  municipality. 

§  266.  Form  of  indorsement  controls  title  to  collections. 

If  the  owner  of  paper  desires  to  retain  the  title  to  the  col- 
lection, he  should  place  a  restrictive  indorsement  upon  it.  Such 
an  indorsement  would  read  "  indorsed  for  collection."  This 
kind  of  an  indorsement  destroys  the  negotiability  of  the  paper. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
The  Commercial  Bank  of  Pennsylvania  v.  Armstrong,  148 
U.  S.  50,  says: 

"  The  words  ''  for  collection  '  evidently  had  a  meaning.  That 
meaning  was  intended  to  limit  the  effect  which  would  have 
been  given  to  the  indorsement  Avithout  them  and  warned  the 
party  that  contrary  to  the  purpose  of  a  general  or  blank  in- 
dorsement, this  was  not  intended  to  transfer  the  ownership 
of  the  note  or  its  proceeds." 

And  in  White  v.  l^ational  Bank,  102  TJ.  S.  658-661,  where 

12  Armour  Packing  Co.  r.  Davis,  Butcliers  &  Drovers'  Bank  V.  Hub- 
Receiver,   118   N.   C.   548;   National       boll,  117  N.  Y.  384. 


CH.  XXXVIII.]  Banking.  423 

the  indorsement  was  "for  account,"  the  same  justice,  speaking 
of  the  indorsement,  said: 

"  It  does  not  purport  to  transfer  the  title  of  the  paper  or 
the  ownership  of  the  money  when  received.  The  plaintiff  then, 
as  principal,  could  have  control  of  the  paper  at  any  time  before 
its  payment,  and  this  control  extended  to  such  time  as  the 
money  was  received  by  its  agent." 

The  court  here  cites:  117  X.  Y.  38-1;  148  Mass.  553;  151 
Mass.  413;  14  S.  W.  Rep.  411;  76  Ind.  561. 

Where  the  paper  is  controlled  by  such  a  restrictive  indorse- 
ment, the  courts  emphatically  hold  that  it  does  not  transfer 
the  title  of  the  paper  or  the  ownership  of  the  money  when 
received. 

Sustaining  the  doctrine  that  a  collection  made  by  a  bank 
upon  paper  indorsed  to  it  by  restrictive  indorsement  cannot 
place  the  money  so  collected  in  the  general  funds  of  the  bank, 
but  must  retain  the  same  as  previously  stated  as  a  special  de- 
posit or  collection  for  the  benefit  of  the  owner. ^^ 

^yhere  a  iiegotiable  instrument,  then,  is  indorsed  to  a  hanh 
for  collection  and  a  restrictive  indorsement  is  placed  upon  the 
paper,  the  hanh  does  not  become  the  owner  of  the  paper,  hut 
receives  the  same  for  the  purpose  of  collection  only. 

Where  an  instrument  in  the  following  language: 

"  Pay  S.  V.  White  or  order,  for  account  Miner's  National 
Bank,  Georgetown,  Colorado. 

"  J.  L.  BROWisrELL,  President." 

Which  directs  that  the  proceeds  when  collected  shall  be  paid 
to  a  certain  person,  does  not  pass  the  title. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
White  V.  National  Bank,  102  U.  S.  658,  says: 

"  The  language  of  the  indorsement  is  without  ambiguity 
and  needs  no  explanation  either  by  parole  proof  or  by  resort  to 
usage.  The  plain  meaning  of  it  is,  that  the  acceptor  of  the 
draft  is  to  pay  to  the  indorsee  for  the  use  of  the  indorser. 
The  indorsee  is  to  receive  it  on  account  of  the  indorser.  It 
does  not  purport  to  transfer  the  title  of  the  paper  or  the  owner- 
ship of  the  money  when  received." 

The  Appellate  Court  of  the  State  of  Illinois,  in  the  case  of 

13  Evansville  Bank  v.  German  American  Bank,  155  U.  S.  556. 


424:  Collections  by  Banks.  [ch.  xxxviii. 

Fawsett  V.  Xational  Life  Ins.  Co.  of  U.  S.,  5  111.  App.  272, 
where  an  instrument  indorsed: 

"  Pay  to  the  Second  Xational  Bank  of  Monmouth,  for  col- 
lection, for  account  of  George  F.  Harding,  executor  of  Abner 
C.  Harding,  deceased. 

A.  F.  FAWSETT." 

Held,  that  where  a  note  is  indorsed  in  a  form  showing  an 
intention  to  pass  all  interest  in  the  note,  such  indorsement 
imports  a  consideration,  and  wherever  that  is  the  case,  the 
property  in  the  instrument  will  be  deemed  to  have  passed 
absolutely  to  the  assignee. 

§  267.  Blank  indorsement. 

It  may  be  stated  that  the  general  nile  is  that  a  blank  indorse- 
ment by  the  payee  or  holder  of  a  negotiable  instrument  carries 
the  title  to  the  bank. 

The  rule  in  i^ew  York  and  most  of  the  States  is,  that  where 
a  customer  doing  business  with  a  bank  and  having  a  general 
account  therein,  deposits  a  check,  indorsing  the  same  in  blank 
and  receives  credit  on  his  pass-book,  the  title  to  the  check  so 
indorsed  passes  to  the  bank.  Hoivever,  where  the  customer 
understands  mid  has  notice  of  the  fact  that  the  paper  was  in- 
dorsed and  delivered  to  the  hank  for  collection  only,  the  title 
ivill  remain  in  the  depositor}* 

§  268.  Power  to  collect  may  be  revoked. 

The  owner  of  the  paper  at  any  time  before  the  bank  takes 
action,  may  revoke  the  authority  of  the  bank  from  proceeding 
in  the  collection. 

This  is  upon  the  analogy  that  the  bank  is  acting  as  an  agent. 

If  the  bank  persists  in  the  collection,  it  may  be  restrained 
by  an  order  of  the  court. 

The  power  to  revoke  the  collection  cannot  be  enforced,  how- 
ever, if  the  bank  has  acquired  a  lien  upon  it.  The  lien  gives 
the  bank  an  interest  in  the  property,  and  if  the  collection  has 
matured  it  is  the  duty  of  the  bank  to  collect. 

If  the  bank  becomes  insolvent,  its  power  to  collect  is  revoked. 

14  ■Metropolitan      Nat.      Bank      v.       low.  142  Mass.  0;  Bank  of  Republic 
Lovd,  90  N.  Y.  530;  Brooks  v.  Bige-       v.   Millard,    10   Wall.    (U.    S.)    152. 


CH.  XXXVIII.]  Baxkixg.  425 

But  where  a  bank  has  brought  suit  and  has  entered  upon 
the  process. of  collecting,  its  authority  cannot  be  revoked  unless 
it  is  shown  that  it  obtained  authority  unla^\"fully. 

It  is  claimed  that  the  authority  of  the  bank  may  be  revoked 
after  it  has  entered  on  t'he  process  of  collection  if  it  fails  to 
take  the  steps  necessary  to  recover  the  coUection.-^^ 

§  269.  Bank  lien  upon  collections. 

The  Supreme  Court  of  the  State  of  Michigan,  in  the  case  of 
Gibbins  v.  Hecox,  reported  in  63  X.  "W.  519,  lays  down  the 
general  rule  to  be  that  a  bank  has  a  lien  on  all  money,  notes 
and  funds  of  a  customer  in  its  possession  for  any  indebted- 
ness of  a  customer  to  the  bank  which  is  due  and  unpaid. 

The  court  says: 

"  The  reason  given  for  allowing  the  lien  is,  that  any  credit 
which  a  bank  gives  by  discounting  notes  or  allowing  an  over- 
draft to  be  made,  is  given  on  the  faith  that  money  or  securi- 
ties will  come  into  the  possession  of  the  bank  in  the  due 
course  of  future  transactions." 

The  court,  in  its  opinion,  cites  the  case  In  re  Farnsworth, 
5  Biss.  223,  Fed.  Cas.  Xo.  4673,  stating: 

"  Judge  Blodgett  of  the  United  States  Circuit  Court  of 
Illinois  held  that,  a  bank  holding  a  customer's  demand  note 
has  a  lien  upon  the  proceeds  of  drafts  delivered  to  it,  for  col- 
lection after  the  giving  of  the  note,  though  collected  after  the 
filing  of  petition  in  bankruptcy  and  can  apply  such  proceeds 
upon  the  note." 

The  court  then  cites  from  the  case  of  Muench  v.  Bank,  11 
Mo.  App.  144,  which  court  says: 

"  The  general  lien  of  bankers  is  part  of  the  law  merchant. 
That  bankers  have  a  lien  on  all  money  and  funds  of  a  depositor 
in  their  possession  for  the  balance  of  the  general  account  is 
undisputed.  A  banker's  lien  does  not  arise  on  securities  de- 
posited with  him  for  a  special  purpose,  otherwise  we  have  no 
doubt  that  when  a  discount  has  been  made  by  the  bank,  and 
the  note  has  matured,  so  as  to  create  an  indebtedness  from 
the  depositor  of  the  bank,  all  funds  of  the  depositor  which  the 
bank  has  at  the  date  of  the  maturity  of  the  discounted  note, 
or  M'hich  it  afterward  acquires  in  the  course  of  business  with 
15  Bank  of  INIobile  v.  Huggins,  3  Ala.  206. 


-126  Collections  by  Banks.  [en.  xxxviii. 

him,  may  be  applied  to  the  discharge  of  his  indebtedness  to 
the  bank;  and  this  is  trne  not  only  of  the  general  deposit  of 
the  cnstomer,  but  the  rule  applies  to  any  commercial  paper  be- 
longing to  the  depositor  in  his  own  right  and  placed  by  him 
with  the  bank  for  collection." 

A  corresponding  bank  receiving  a  collection  with  the  state- 
ment that  the  collection  belongs  to  ''A."  and  not  to  the  bank 
remitting  the  same,  the  correspondent  bank  cannot  acquire 
a  lien  against  the  collection  for  a  debt  which  the  forward- 
ing bank  may  owe  to  it.^^ 

But  if  the  correspondent  bank  has  no  notice,  but  receives 
the  collection  as  the  property  of  the  remitting  bank,  the  cor- 
respondent bank  has  a  lien  for  a  debt  that  may  exist  between 
them,  the  rule  may  then  be  safely  stated  that  a  bank  holding 
a  collection  as  between  the  owner  and  itself,  it  cannot  acquire 
a  lien  upon  the  collection  or  proceeds  unless  the  debt  existing 
from  the  o^^^ler  of  the  security  to  the  bank  was,  at  the  time 
the  collection  was  made,  a  matured  debt. 

And,  as  between  the  correspondent  bank  and  its  agent,  the 
agent  cannot  acquire  a  lien  where  the  collection  is  sent  and 
indorsed  "  for  collection." 

A  letter  accompanying  a  collection  (which  collection  bears  a 
general  indorsement)  which  explains  a  blank  indorsement, 
would  also  be  held  as  notice  to  the  collecting  bank. 

The  rule  may  be  again  stated  that  a  bank  cannot  acquire 
a  lien  against  a  collection  in  any  instance  where  the  title  of  the 
paper  remains  in  the  owner. 

§  270.  Authority  of  bank  to  make  collections. 

AVhen  a  collection  is  received  by  a  bank,  it  not  only  has  the 
implied  authority  to  collect  which  is  granted  to  it  in  the  general 
power  to  do  a  general  banking  business,  but  it  may  be  said 
that  it  becomes  a  duty. 

The  principle  that  the  power  is  implied  requires  no  dis- 
cussion. 

The  character  of  the  business  of  a  commercial  bank  sug- 
gests and  requires  it  to  perform  the  business  of  making  col- 
lections. 

The  National  Banking  Law  does  not  specifically  designate 

16  Bank  of  ^letropolis  v.  New  England  Bank,  1  How.  234. 


CH.  XXXVIII.]  Bankixg.  427 

the  business  of  making  collections  a  pro^-ision  of  the  statute, 
but  the  business  itself  forms  a  large  branch  of  the  banking 
business  and  its  power  is  not  denied. 

Held,  in  case  of  First  Xat.  Bank  of  Fort  "Worth,  Texas  v. 
Payne,  42  S.  W.  786,  that  plaintiff  bank  can  not  recover  upon 
a  note  assigned  to  it  merely  for  the  purpose  of  collection. 
But  see  First  Xat.  Bank  v.  Hughes  (Cal.),  46  Pac.  272. 

The  rule  as  laid  down  by  the  Supreme  Court  of  the  United 
States  as  to  the  liability  and  duty  of  the  collecting  bank  where 
it  receives  drafts  and  other  collections  from  its  customers  and 
for  defaults!  of  its  agents,  the  court  after  discussing  the  de- 
cisions of  the  various  States  presents  the  rule  to  be  as  fol- 
lows: 

"  The  question  involves  a  rule  of  law  of  general  application. 
AVhatever  be  the  proper  rule  it  is  one  of  commercial  law.  It 
concerns  trade  between  different  and  distant  places,  and,  in 
the  absence  of  statutory  regulations  or  special  contract  or 
usage  having  the  force  of  law,  it  is  not  to  be  determined  ac- 
cording to  the  views  or  interests  of  any  particular  individuals, 
classes,  or  localities,  but  according  to  those  principles  which 
will  best  promote  the  general  welfare  of  the  commercial  com- 
munity. Especially  is  this  so  when  the  question  is  presented 
to  this  tribunal,  whose  decisions  are  controlling  in  all  cases  in 
the  Federal  courts. 

"^  The  agreement  of  the  defendant  in  this  case  was  to  collect 
the  drafts,  not  merely  to  transmit  them  to  the  Xewark  bank 
for  collection.  This  distinction  is  manifest;  and  the  question 
presented  is,  whether  the  Xewark  bank,  first  receiving  these 
drafts  for  collection,  is  responsible  for  the  loss  or  damage  re- 
sulting from  the  default  of  its  Xewark  agent.  There  is  no 
statute  or  usage  or  special  contract  in  this  case,  to  qualify  or 
vary  the  obligation  resulting  from  the  deposit  of  the  drafts 
with  the  Xew  York  bank  for  collection.  On  its  receipt  of  the 
drafts,  under  these  circumstances,  an  implied  undertaking  by 
it  arose,  to  take  all  necessary  measures  to  make  the  demands 
of  acceptance  necessary  to  protect  the  rights  of  the  holder 
against  previous  parties  to  the  paper.  From  the  facts  found, 
it  is  to  be  inferred  that  the  Xew  York  bank  took  the  drafts 
from  the  plaintiff,  as  a  customer,  in  the  usual  course  of  busi- 
ness.    There  are  eleven  drafts  in  the  case,  running  through 


428  Collections  by  Banks.  [ck.  xxxviii. 

a  period  of  over  three  months,  and  the  defendant  had  pre- 
viously received  from  the  plaintiff  two  other  drafts,  accept- 
ances of  which  it  had  procured  from  Conger,  at  Newark, 
through  the  Xewark  bank.  The  taking  by  a  bank,  from  a 
customer,  in  the  usual  course  of  business,  of  paper  for  collec- 
tion, is  sufficient  evidence  of  a  valuable  consideration  for  the 
service.  The  general  profits  of  the  receiving  bank  from  the 
business  between  the  parties,  and  the  accommodation  to  the 
customer,  must  all  be  considered  together,  and  form  a  con- 
sideration, in  the  absence  of  any  controlling  facts  to  the  con- 
trary, so  that  the  collection  of  the  paper  cannot  be  regarded 
as  a  gratuitous  favor.  Bank  of  Utica  v.  Smeads,  20  Johns. 
372,  and  3  Cowen,  662;  McKinster  v.  Bank  of  Utica,  9  AVend. 
46;  affirmed  in  Bank  of  Utica  v.  McKinster,  11  AVend.  473. 

"  The  contract,  then,  becomes  one  to  perform  certain  duties 
necessary  for  the  collection  of  the  paper  and  the  protection 
of  the  holder.  The  bank  is  not  merely  appointed  an  attorney, 
authorized  to  select  other  agents  to  collect  the  paper.  Its 
undertaking  is  to  do  the  thing,  and  not  merely  to  procure  it 
to  be  done.  In  such  case,  the  bank  is  held  to  agree  to  answer 
for  any  default  in  the  performance  of  its  contract;  and, 
whether  the  paper  is  to  be  collected  in  the  place  where  the 
bank  is  situated,  or  at  a  distance,  the  contract  is  to  use  the 
proper  means  to  collect  the  paper,  and  the  bank,  by  employ- 
ing sub-agents  to  perform  a  part  of  what  it  has  contracted  to 
do,  becomes  responsible  to  its  customer.  This  general  prin- 
ciple applies  to  all  who  contract  to  perform  a  service.  It  is  il- 
lustrated by  the  decision  of  the  Court  of  King's  Bench,  in  Ellis 
V.  Turner,  8  T.  R.  531,  where  the  owners  of  a  vessel  carried 
goods  to  be  delivered  at  a  certain  place,  but  the  vessel  passed  it 
by  without  delivering  the  goods,  and  the  vessel  was  sunk  and  the 
goods  were  lost.  In  a  suit  against  the  owners  for  the  value  of  the 
goods,  based  on  the  contract,  it  was  contended  for  the  defend- 
ants that  they  were  not  liable  for  the  misconduct  of  the  master 
of  the  vessel  in  carrying  the  goods  beyond  the  place.  But  the 
plaintiff  had  judgment.  Lord  Kenyon  saying  that  the  defend- 
ants were  answerable  on  their  contract,  although  the  mis- 
conduct M'as  that  of  their  servant,  and  adding:  '  The  defend- 
ants are  responsible  for  the  acts  of  their  servant  in  those 
things  that  respect  his  duty  imder  them,  though  they  are  not 


cii.  XXXVIII.]  Baxking,  429 

answerable  for  liis  misconduct  in  those  things  that  do  not 
respect  his  duty  to  them.' 

"  The  distinction  between  the  liability  of  one  who  contracts 
to  do  a  thing  and  that  of  one  who  merely  receives  a  delegation 
of  authority  to  act  for  another  is  a  fundamental  one,  appli- 
cable to  the  present  case.  If  the  agency  is  an  undertaking 
to  do  the  business  the  original  principal  may  look  to  the  im- 
mediate contractor  with  himself,  and  is  not  obliged  to  look  to 
inferior  or  distant  under  contractors  or  snb-agents,  when  de- 
faults occnr  iiijnrions  to  his  interest. 

"  "Whether  a  draft  is  payable  in  the  place  where  the  bank 
receiving  it  for  collection  is  situated,  or  in  another  place,  the 
holder  is  aware  that  the  collection  must  be  made  by  a  com- 
petent agent.  In  eith-er  case,  there  is  an  implied  contract  of 
the  bank  that  the  proper  measures  shall  be  used  to  collect  the 
draft,  and  a  right,  on  the  part  of  its  owner,  to  presume  that 
proper  agents  will  be  employed,  he  having  no  knowledge  of 
the  agents.  There  is,  therefore,  no  reason  for  liability  or 
exemption  from  liability  in  the  one  case  which  does  not  apply 
to  the  other.  And,  while  the  rnle  of  law  is  thus  general,  the 
liability  of  the  bank  may  be  varied  hy  consent,  or  the  bank 
may  refuse  to  undertake  the  collection.  It  may  agree  to  re- 
ceive the  paper  only  for  transmission  to  its  correspondent,  and 
thus  make  a  different  contract,  and  become  responsible  only 
for  the  good  faith  and  due  discretion  in  the  choice  of  an  agent. 
If  this  is  not  done,  or  there  is  no  implied  understanding  to 
that  effect,  the  same  responsibility  is  assumed  in  the  under- 
taking to  collect  foreign  paper  and  in  that  to  collect  paper 
payable  at  home.  On  any  other  ride,  no  principal  contractor 
would  be  liable  for  the  default  of  his  own  agent,  where  from 
the  nature  of  the  business,  it  was  evident  he  must  employ  sub- 
agents.  The  distinction  recurs,  between  the  rule  of  merely 
personal  representative  agency  and  the  responsibility  imposed 
by  the  law  of  commercial  contracts.  This  solves  the  difficulty 
and  reconciles  the  apparent  conflict  of  decision  in  many  cases. 
The  nature  of  the  contract  is  the  test.  If  the  contract  he  only 
for  the  immediate  services  of  the  agent,  and  for  his  faithful  con- 
duct as  representing  Jtis  principal,  the  responsihiliiy  ceases  with 
the  limits  of  the  personal  services  undertaken.  But  where  the 
contract  Joolcs  mmnly  to  the  thing  to  he  done,  and  the  undertak- 


430  Collections  by  Banks,  [cir.  xxxviii. 

ing  is  for  the  due  use  of  all  proper  means  to  performance,  the 
responsibility  extends  to  all  necessary  and  proper  means  to  ac- 
complish the -object,  by  whomsoever  used. 

"  "We  regard  as  the  proper  rule  of  law  applicable  to  this  case, 
that  declared  in  Van  AVart  v.  AVoolley,  3  B.  tt  C.  430,  where 
the  defendants,  at  Birmingham,  received  from  the  plaintiff  a 
bill  on  London,  to  procure  its  acceptance.  They  forwarded  it 
to  their  London  banker,  and  acceptance  w^as  refused,  but  he 
did  not  protest  it  for  non-acceptance  or  give  notice  of  the  re- 
fusal to  accept.  Chief  Justice  Abbott  said:  'Upon  this  state 
of  facts  it  is  evident  that  the  defendants  (who  cannot  be  dis- 
tinguished from,  but  are  answerable  for,  their  London  cor- 
respondent) have  been  guilty  of  a  neglect  of  the  duty  which 
they  owed  to  the  plaintiff,  their  employer,  and  from  whom  they 
received  a  pecuniary  reward  for  their  services.  The  plaintiff 
iy,  therefore,  entitled  to  maintain  his  action  against  them,  to 
the  extent  of  any  damage  he  ma}'  have  sustained  by  their 
neglect.'  In  that  case  there  was  a  special  pecuniary  reward 
for  the  service.  But,  upon  the  principles  we  have  stated,  we 
are  of  opinion  that,  by  the  receipt  by  the  defendant  of  the 
drafts  in  the  present  case  for  collection,  it  became,  upon  gen- 
eral principles  of  law,  and  independently  of  any  evidence  of 
usage,  or  of  any  express  agreement  to  that  effect,  liable  for  a 
neglect  of  duty  occurring  in  that  collection,  from  the  default 
of  its  correspondent  in  Xewark. 

"  What  was  the  duty  of  the  defendant,  and  what  neglect  of 
duty  was  there  ?  An  agent  receiving  for  collection,  before 
maturity,  a  draft  payable  on  a  particular  day  after  date,  is  held 
to  due  diligence  in  making  presentment  for  acceptance,  and, 
if  chargeable  with  negligence  therein,  is  liable  to  the  owner 
for  all  damages  he  has  sustained  b}'  such  negligence,  Allen  v. 
Suydam,  20  Wend.  321;  Walker  v.  Bank  of  the  State  of  Xew 
York,  5  Seld,  582,  The  drawer  or  indorser  of  such  a  draft  is, 
indeed,  not  discharged  by  the  neglect  of  the  holder  to  present 
it  for  acceptance  before  it  becomes  due.  Bank  of  Washington 
V.  Triplett,  1  Pet.  25,  35;  Townsley  v.  Sumrall,  2  Pet,  170, 
178.  But  if  the  draft  is  presented  for  acceptance  and  dis- 
honored before  it  becomes  due,  notice  of  such  dishonor  must 
he  given,  to  the  drawer  or  indorser,  or  he  u'ill  be  discharged. 
3  Kent's  Com.  82;  Bank  of  Washington  v.  Triplett,  1  Pet,  25, 


cii.  XXXVIII.]  Banking.  431 

35;  Allen  v.  Siiydam,  20  Wend.  321;  Walker  v.  Bank  of  the 
State  of  Xew  York,  5  Seld.  582 ;  Goodall  v.  Uolley,  1  T.  R. 
712;  Bayley  on  Bills  (2d  Am.  ed.),  213. 

"  Moreover,  the  o^^^ler  of  a  draft  payable  on  a  day  certain, 
though  not  bonnd  to  present  it  for  acceptance  in  order  to  hold 
the  drawer  and  indorser,  has  an  interest  in  having  it  presented 
for  acceptance  without  delay,  for  it  is  only  by  accepting  it  that 
the  drawee  becomes  bonnd  to  pay  it,  and  on  the  dishonor  of 
the  draft  by  non-acceptance,  and  due  protest  and  notice,  the 
owner  has  a  right  of  action  at  once  against  the  drawer  and 
indorser,  without  waiting  for  the  maturity  of  the  draft;  and 
his  agent  to  collect  the  draft  is  bound  to  do  what  a  prudent 
principal  would  do.  3  Kent's  Com.  91;  Robinson  v.  Ames, 
20  Johns.  116;  Lenox  v.  Cook,  8  Mass.  460;  Ballingalls  v. 
Gloster,  3  East.  481;  AMiitehead  v.  Walker,  9  M.  k  W.  506; 
Walker  v.  Bank  of  the  State  of  Xew  York,  5  Seld.  582. 

"  In  view  of  these  considerations,  it  is  well  settled  that  there 
is  a  distinction  between  the  owner  of  a  draft  and  his  agent, 
in  that,  though  the  owner  is  not  bound  to  present  a  draft  pay- 
able at  a  day  certain  for  acceptance,  before  that  day  the  agent 
employed  to  collect  the  draft  must  act  with  due  diligence  to 
have  the  draft  accepted  as  well  as  paid,  and  has  not  the  dis- 
cretion and  latitude  of  time  given  to  the  owner,  and,  for  any 
unreasonable  delay,  is  responsible  for  all  damages  sustained 
by  the  owner.  3  Kent's  Com.  82;  Chitty  on  Bills  (13th  Am. 
eil.),  272,  273." 

Where  a  bank  receives  a  collection  with  instructions,  it  must 
discharge  its  duties,  follow  the  instructions,  if  reasonable,  and 
exercise  reasonable  diligence  and  care.  As  to  what  is  reason- 
able diligence,  is  a  question  of  fact  to  be  determined  by  the 

17 

jury. 

Whre  the  draft  is  lost  through  negligence,  the  measure  of 
damages  prima  facie  is  the  amount  of  the  bill.^* 

§  271.  Bank  suing  in  its  own  name. 

Rule.  The  statute  of  the  State,  ichere  suit  is  brought,  con- 
trols. The  qeneral  rule  is,  that  if  the  indorsement  upon  the 
instrument  is  in  blank,  the  bank  can  sue  in  its  own  name.  The 
blank  indorsement  implies  title  to  the  instrument. 

n  National    Bank    i;.    City    Bank,  18  Allen  r.  Suydam,  20  Wend.  319. 

103  U.  S.  668. 


432  COLLECTIOXS  BY  BaNKS.  [ciI.  XXXVIII. 

The  rule  is  carried  further  in  many  of  the  States  and  it  is 
held  that  the  bank  as  an  "  indorsee  for  collection  "  mav  sue  in 
its  own  name. 

The  States  of  California,  Rhode  Island,  Oregon,  Georgia, 
Nebraska,  Missouri,  Illinois,  Tenessee,  Florida,  Michigan,  and 
Xew  York  hold  that  a  transfer  of  a  note  to  a  bank  for  collection 
gives  it  such  an  ownership  thereof  that  it  can  sue  the  maker  in 
its  own  name. 

The  States  that  have  adopted  the' new  negotiable  instrument 
laws  enlarge  the  rule  and  confer  upon  the  bank  receiving  col- 
lections, the  right  to  sue  in  its  own  name  upon  a  restrictive 
indorsement. 

Where  a  statute  provides  that  an  action  shall  be  prosecuted 
in  the  name  of  the  real  party  in  interest,  an  agent  cannot  be 
for  the  purpose  of  collection,  the  real  party  in  interest. 

In  the  State  of  California,  the  code  provides  that  every 
action  must  be  prosecuted  in  the  name  of  the  real  party  in 
interest,  except  that  an  executor  or  administrator  or  trustee 
of  an  express  trust  or  person  expressly  authorized  by  statute, 
may  sue  without  joining  with  him,  the  persons  for  whose  bene- 
fit the  action  is  prosecuted. 

A  real  party  in  interest  is  defined  by  the  court,  in  the  case 
of  Giselman  v.  Starr,  100  Cal.  651,  as  follows: 

The  court  says: 

"  But  where  the  plaintiff  shows  such  a  title  as  that  a  judg- 
ment upon  it  satisfied  by  defendant,  will  protect  him  from 
future  annoyance  or  loss ;  and  wdiere,  as  against  the  party  suing, 
defendant  can  urge  any  defenses  he  could  make  against  the 
real  owner,  then  there  is  an  end  of  the  defendant's  concern 
and  with  it  of  his  right  to  object ;  for,  so  far  as  he  is  interested, 
the  action  is  being  prosecuted  in  the  name  of  the  real  party  in 
interest." 

In  the  case  of  Lanier  v.  Xash,  121  U.  S.  404,  it  is  held  that 
a  bank  holding  a  note  and  mortgage  as  trustee  for  collection 
for  another,  may  sue  to  foreclose  in  its  own  name. 

For  a  leading  case  denying  the  right  of  a  bank  to  sue  in  its 
own  name,  see  First  ISTat-  Bank  of  Evansville  v.  Fourth  Nat. 
Bank  of  Louisville,  56  Fed.  Rep.  967. 


CH.  XXXVIII.]  Baxkixg.  433 

The  court  savs,  in  discussing  the  question  that  the  authorities 
are  decidedly  in  favor  of  the  law  as  given,  but  under  special 
circumstances  as  where  delay  to  bring  suit  (the  collecting  bank 
being  the  indorsee)  would  operate  to  discharge  a  surety,  and 
there  was  not  time  to  wait  for  advises  from  the  owner  of  the 
paper,  it  would  be  the  duty  of  the  collecting  bark  to  bring  suit. 

§  272.  When  bank  may  renounce  its  authority  to  collect. 

A  bank  is  not  permitted  to  renounce  its  authority  or  refuse 
to  make  a  collection  af-ter  the  collection  has  been  received  and 
accepted  by  it  from  the  owner. 

The  bank  mus;t  take  all  the  steps  necessary  and  imposed  upon 
it  by  law  to  enforce  the  collection. 

A  draft,  however,  which  has  been  by  the  collecting  bank, 
presented  for  acceptance  after  dishonor,  may  be  returned  to 
the  owner  within  a  reasonable  time,  and  the  act  will  be  con- 
sidered and  construed  as  a  renunciation  of  authority  and  the 
bank  will  be  relieved  of  liability.  But  the  return  of  the  instru- 
ment must  be  done  promptly. 

The  retention  of  a  dishonored  draft  for  any  length  of  time, 
which,  during  the  time,  if  in  the  hands  of  the  owner,  collection 
could  have  been  made,  would  make  the  bank  liable  for  the  loss 
sustained. 

In  the  case  of  Paint  Company  v.  Xational  Bank,  -1  Utah,  353, 
where : 

"  The  defendant  l)ank  received  from  the  plaintiff,  for  col- 
lection, a  sight  drafr  on  B.  &  S.,  the  draft  was  accepted  and 
the  plaintiff  notified  thereof;  the  defendant,  without  further 
notification  or  taking  any  steps  to  collect  the  draft,  held  it  for 
forty-seven  days  and  then  returned  it  as  uncollectible.  During 
all  this  time  B.  tt  S.  were  known  by  defendant  to  be  insolvent, 
but  had  jDroperty  worth  more  than  the  amount  of  the  draft 
which  was  covered  by  an  invalid  deed  of  trust. 

"  Two  days  after  the  return  of  the  draft,  B.  &  S.  made  an 
assignment  for  the  benefit  of  creditors  to  L.  The  vice-presi- 
dent and  a  director  of  the  defendant,  preferring  a  debt  due 
defendant;  held,  that  defendant  was  guilty  of  such  neglect  of 
duty  in  respect  to  the  draft  as  to  render  it  liable  for  the  amount 
thereof." 
28 


434  Collections  BY  Banks.  [cii.  xxxviii. 

The  rule  fixing  the  liability,  attaches  to  the  bank  when  it 
receives  the  collection;  if  received  and  before  any  loss  may 
occur  to  the  owner,  it  may  renounce  its  authority  by  an  imme- 
diate return  of  the  collection. 

If,  however,  the  bank  receives  the  collection,  and  undertakes 
^^^th  its  depositor  to  collect  for  him  the  collection,  and,  upon 
indorsement  thereof  by  the  owner,  the  bank  gives  him  credit 
for  the  amount  upon  his  pass-book,  it  cannot  then  arbitrarily 
return  the  draft  but  must  use  reasonable  diligence  to  collect 
the  same. 

The  credit  and  entry  in  the  pass-book  operates  as  a  closing  of 
the  transaction  and  implies  a  contract  upon  the  part  of  the 
bank  to  make  the  collection.^" 

§  273.  Duty  of  collecting  bank  —  Care  —  Diligence. 

The  general  rule  is  again  stated  that  the  bank  in  receiving 
a  collection  must  use  ordinary  care  and  diligence  toward  its 
collection. 

The  diligence  and  care  required  depends  largely  upon  the 
circumstances  arising  in  each  case. 

A  bank  may  contract  against  liability  for  negligence  of  its 
agents  or  correspondents,  especially  so  if  the  agent  or  corre- 
spondent is  known  to  and  accepted  by  the  owmer  of  the  col- 
lection. But  this  rule  is  not  good  where  the  bank  selects  a 
correspondent  without  the  consent  or  knowledge  of  the  o^^^ler 
that  proves  to  be  irresponsible  and  incompetent. 

When  the  collecting  bank  assumes  the  responsibility,  its 
duty  is  to  employ  responsible  correspondents.^^ 

The  Supreme  Court  of  the  State  of  Illinois,  in  the  case  of 
Fay  V.  StraAATi,  32  111.  295,  has  held  that  a  bank  has  the  right 
to  stipulate  against  ordinary  liabilities  of  collecting  paper. 

The  opinion  of  the  court  is  very  interesting  and  instructive 
upon  this  question. 

Opinion  of  the  Court. 

"  It  is  insisted  that  the  finding  of  the  jury  is  clearly  against 
the  weight  of  the  evidence,  and  that  the  court  below  erred  in 
not  granting  a  new  trial.  The  witness,  Fay,  testified  that  ap- 
pellants, when  first  applied  to,  positively  refused  to  undertake 

20  Kirkham  i'.  Bank  of  America,  21  Fay  r.  Strawn,  32  III.  295. 

165  N.  Y.  132. 


cii.  xxxviii.]  Banking.  435 

the  collection  of  the  draft.  That  when  they  were  applied  to  a 
second  time  for  the  same  purpose,  they  only  agreed  to  send 
the  draft  forward,  upon  the  condition  that  they  were  to  incur 
no  liability.  That  it  was  agreed  it  should  be  sent  to  Burch 
&  Co.,  for  presentation,  and  when  paid  to  be  sent  to  appellants 
by  express.  That  the  draft  was  thus  sent  with  these  instruc- 
tions. This  evidence  stands  uncontradicted  by  any  other  testi- 
mony in  the  record.  It  was,  however,  attempted  to  destroy 
its  force  by  proving  the  usual  course  of  business  of  this  and 
other  banks  of  Ottawa.  And  much  stress  was  placed  upon  the 
fact  that  when  collected,  Burch  &  Co.  placed  the  money  to  the 
credit  of  appellants. 

"  If  a  special  agreement  was  entered  into  at  the  time,  the 
usage  of  this  or  other  banking-houses  could  not  in  the  least 
affect  the  liability  of  appellants.  Proof  of  usage  can  only  he 
received  to  show  the  intention  or  understanding  of  the  parties 
in  the  absence  of  a  special  agreement.  The  parties  have  the 
right  to  stipulate  against  the  ordinary  liahilities  of  the  busi- 
ness, and  appellants  did  clearly  provide  by  express  agreement 
against  any  supposed  liability  growing  out  of  their  undertak- 
ing. When  the  draft  was  sent  forward  by  appellants  to  Burch 
&  Co.,  in  accordance  w^ith  the  agreement,  they  became  the 
agents  of  appellee  for  the  collection  of  the  money.  We  are 
unable  to  see  anything  in  the  evidence  that  overcomes  Fay's 
testimony. 

"  It  appears  from  appellant's  letter  remitting  the  draft  to 
Burch  6:  Co.,  that  they  gave  directions  to  collect  and  at  once 
to  send  the  money  by  express,  as  it  had  been  agreed  between 
appellants  and  appellee. 

The  clerk  of  Burch  &  Co.  testified  that  when  the  money 
was  collected  it  was  by  mistake  passed  to  the  credit  of  ap- 
pellants and  against  their  instructions.  Xothing  can  be  in- 
ferred against  appellants  from  this  act,  done  without  their 
sanction  or  consent.  And  it  will  be  remembered  it  was  not  by 
their  agents,  but  those  of  tlie  appellee. 

It  is  also  urged  that  appellants  were  guilty  of  negligence 
in  sending  the  draft  to  an  irresponsible  banking-house  for 
collection.  The  evidence  shows  that  in  Chicago,  where  Burch 
&  Co.  did  business,  their  character  for  solvency  was  good.  It, 
however,  appears  that  Warner  had  suspicions  of  their  solvency 


436  Collections  by  Ban^ks.  [ch.  xxxvih. 

and  communicated  them  to  appellants,  but  he  states  no  facts, 
except  that  he  had  heard  persons  predict  that  Corning  would 
break  Burch  in  their  litigation.  It  also  appears  that  some 
depositors  withdrew  their  funds  previous  to  that  time  from 
Burch  &  Co.'s  banking-house.  But  it  does  not  appear  that 
appellants  were  aware  of  the  fact,  nor  that  the  withdrawal  was 
occasioned  by  want  of  confidence  in  the  solvency  of  Burch  & 
Co.  The  appellants  transacted  their  business  through  this 
banking-house  and  seem  to  have  had  confidence  in  its  solvency. 
This  evidence  is  not  sufficient  to  establish  the  liability  of  the 
appellants. 

"  It  was  lastly  urged  that  appellants  were  guilty  of  negli- 
gence in  taking  no  steps  to  correct  the  mistake  in  passing  the 
money  to  their  credit.  It  does  not  appear  that  they  had  any 
notice  of  the  mistake  until  they  heard  of  the  failure.  But  it 
is  insisted  that  when  the  money  failed  to  come  by  express,  they 
should  have  written  to  have  learned  the  reason,  and  that  had 
they  done  so  the  money  might  have  been  saved.  The  draft  was 
received  by  Burch  ct  Co.  on  the  30tli  of  May,  and  it  was  paid 
on  the  next  day.  On  the  3d  of  June,  three  days  afterward, 
Burch  &■  Co.  failed  and  made  an  assignment.  There  were, 
then,  but  two  days  between  the  collection  and  the  failure, 
within  which  to  receive  the  money.  Suppose  appellants  had 
become  apprehensive  that  something  Avas  wrong,  by  failing  to 
receive  the  money  by  express  on  the  1st  of  June  and  had 
written  on  the  second,  does  any  one  suppose  the  money  could 
have  been  thus  obtained,  or  information  that  Avould  have  led 
to  its  receipt  ?  It  will  hardly  be  contended  that  because  the 
money  was  not  received  on  the  1st  of  June,  appellants  should 
have  gone  in  person  or  sent  a  messenger  the  next  day ;  and 
even  if  they  had,  it  is  not  probable  anything  could  have  been 
obtained. 

"  We  think  the  verdict  is  clearly  against  the  evidence  and 
that  tlie  court  below  erred  in  refusing  to  set  it  aside.  The 
judgment  is,  therefore,  reversed,  and  the  cause  remanded. 

Judgment  reversed." 

§  274.  Duty  to  present  —  Collection. 

"When  the  bank  receives  a  collection,  when  presentment  is 
necessary,  it  becomes  the  duty  of  the  bank  at  the  proper  time 


oil.  XXXVIII.]  Baxkixg,  437 

in  order  to  charge  the  drawer  and  mdorsers  to  present  the  same 
for  acceptance  or  payment  as  the  case  may  be.  The  absence 
of  special  instructions  (which  instructions  if  contrary  to  law) 
will  not  relieve  it  of  liability. 

The  act  of  presentment  is  performed  by  exhibiting  the  paper 
and  requesting  its  acceptance  or  payment ;  and  when  presented, 
the  person  presenting  the  same  must  be  in  possession  of  the 
instrument. 

The  reason  for  and  requirement  of  an  exliibit  of  the  in- 
strument is  that  the  maker  may  judge  of  the  genuineness  of 
the  same,  and  if  paid,  he  may  receive  immediate  possession  of 
the  bill. 

If  the  drawee  refuses  to  accept  the  bill  when  presented  or 
refuses  to  pay,  the  bill  is  dishonored. 

Where  a  note  is  payable  at  a  particular  bank  and  at  a  speci- 
fied time,  it  is  dishonored  if,  at  the  time  it  became  due  and 
payable,  the  instrument  was  in  the  possession  of  the  bank 
for  collection. 

In  such  a  case,  the  bank  is  not  liable  for  not  making  a  formal 
presentment  of  the  instrument. 

§  275.  Presentment  of  checks. 

The  rule  as  stated  in  a  previous  chapter,  in  discussing  the 
law  of  checks  relating  to  presentment  or  payment  is,  that 
when  a  check  comes  into  the  possession  of  a  bank  for  collec- 
tion it  should  be  presented  for  payment  with  all  dispatch  and 
diligence. 

It  must  be  presented  within  a  reasonable  time  after  its  re- 
ceipt for  collection.  And  as  to  what  constitutes  a  reasonable 
time,  depends  upon  the  circumstances  of  each  case.^ 

The  court,  in  the  case  of  Montelius  v.  Charles,  76  111.  303, 
says: 

"  The  general  doctrine  in  each  case  must  depend  on  its  own 
peculiar  facts  and  be  judged  accordingly." 

Presentment  should  be  made  during  usual  and  reasonable 
hours,  with  banks  presentment  at  a  bank  should  be  during 
banking  hours. 

The  Supreme  Court  of  the  State  of  Vermont  says,  that  when 
a  note  is  payable  at  a  bank  where  its  business  is  transacted 
22  Loyd  V.  Osborn,  92  Wis.  9.3. 


438  Collections  BY  Banks.  [ch.  xxxviii. 

during  certain  specified  hours  of  the  day,  the  note  may  be 
presented  during  any  of  those  hours,  and  it  is  the  duty  of  the 
maker  to  provide  for  its  payment  whenever  the  presentment  i^ 
made.  If  the  note  is  not  paid  when  presented,  the  holder  is 
at  liberty  to  treat  it  as  dishonored,  and  it  is  sufficient  to  charge 
the  indorser. 

In  Xew  York  where  a  promissory  note  was  made  payable 
at  a  bank,  it  appeared  that,  upon  the  day  the  note  fell  due,  the 
indorser  being  ready  to  pay  it,  sent  the  maker  to  the  bank 
during  banking  hours  to  see  if  the  note  was  there  and  to  as- 
certain the  amount. 

In  this  case  the  note  was  not  presented  for  payment  uutil 
an  hour  after  the  close  of  the  customary  banking  hours, 
then  the  holder  was  admitted  into  the  bank  and  found  the 
cashier  and  demanded  payment.  Payment  was  refused  on 
the  ground  that  no  funds  had  been  left  with  the  bank  to  pay. 
The  court  held  that  the  demand  was  sufficient  to  charge  the  in- 
dorser. 

§  276.  Protest  —  Bank's  duty. 

The  collecting  bank  is  bound  to  protest  paper  when  pro- 
test is  necessary  to  preserve  the  owner's  recourse  against  the 
parties  liable  to  him. 

The  Statute  of  a  State  provides  how,  where,  and  when  pro- 
test must  be  made. 

Protest  may  be  waived  upon  a  foreign  bill  of  exchange  by 
language  or  words  on  the  face  of  the  instrument,  waiving 
protest. 

§  277.  Bank  accepting  payment  for  collection. 

A  bank  is  authorized  to  receive  money  only.  If  it  receives 
checks,  drafts,  or  other  evidences  of  debt  by  doing  so  it  takes 
them  at  its  own  risk  and  will  be  held  responsible  in  money 
to  the  owner  of  the  collection.^ 

This  rule  that  the  bank  is  authorized  to  receive  money  only 
is  denied  by  the  Supreme  Court  of  the  State  of  Kentucky,  in 
the  case  of  the  Citizens'  Bank  of  Paris,  Ky.  v.  Houston,  98 
Ky.  139. 

23  Essex  Co.  Nat.  Bank  v.  Bank  of  Montreal,  7  Biss.  193  Fed.  Cas.  Nos. 
4532,  5359. 


CH.  XXXVIII.]  Banking.  439 

Judge  Lewis  delivered  the  opinion  of  the  court : 

"Joseph  Houston,  about  September  22,  1891,  delivered  to, 
and  Citizens'  Bank  of  Paris,  Kentucky,  received  for  collection 
an  order  or  check  for  $129,  which  one  Griffith  had  drawn  on 
the  Cynthiana  Xational  Bank  at  Cynthiana,  payable  September 
30,  1S91,  to  his  order.  In  proper  time  it  w^as  sent  to  the  latter 
bank,  but  returned,  duly  protested  for  non-payment,  of  which 
fact  written  notice  was  immediately  mailed  to  both  appellee  and 
Griffith. 

"  October  6,  1891,  Griffith  drew  an  order  on  the  Bourbon 
Bank  of  Paris,  for  $131.66,  being  the  amount  of  the  original 
one  and  protest  fees  added,  and  payable  to  order  of  Brent, 
cashier  of  Citizens'  Bank  of  Paris,  which,  upon  representation 
that  he  had  there  deposited  money  to  meet  it,  was  accepted  by 
the  bank  instead  of  the  original,  then  canceled  and  given  up. 
But  payment  of  that  check  was  likewise  refused,  although 
presented  for  that  purpose  to  the  Bourbon  Bank  of  Paris,  on 
the  day  it  was  given  and  other  days. 

"  October  22,  1891,  Griffith  made  a  deed  of  assignment  for 
the  benefit  of  creditors  generally,  and  March,  1893,  Houston 
brought  this  action  to  recover  of  Citizens'  Bank  of  Paris, 
amount  of  original  check  and  interest,  for  which,  under  peremp- 
tory instruction  of  the  court,  the  jury  returned  a  verdict,  fol- 
lowed by  judgment  now  appealed  from. 

"  The  alleged  cause  of  action  is  that  defendant,  without 
consent  or  knowledge  of  plaintiff,  canceled  and  gave  up  that 
check  and  accepted  in  lieu  of  it  a  check  from  Griffith,  the 
debtor,  on  another  bank,  made  payable  to  the  order  of  its  own 
cashier. 

"  Up  to  that  time  defendant/  had  performed  its  undertaking 
with  due  diligence  and  in  good  faith,  and  the  original  check  was 
plainly  worthless,  for  Griffith  Avas,  as  seems  to  be  conceded, 
insolvent.  But,  where  strictly  required  to  do  or  attempt  to  do 
more  in  an  effort  to  collect  the  debt,  it  is  plain  defendant 
accepted  the  new  and  gave  up  the  old  check  in  good  faith,  and 
as  the  only  then  practicable  or  possible  way  of  subser^ang 
tlie  interest  of  plaintiff.  And  that  it  intended  and  could  pos- 
siblv  profit  by  assuming  ownership  of  the  debt  and  becoming 
liable  to  Houston,  therefor,  is  wholly  imreasonable.  We  know 
of  no  rule  of  right  that  would,  under  such  circumstances,  make 


440  Collections  by  Banks,  [cii.  xxxviii. 

an  agent  liable  to  his  principal,  for  such  was  the  relation  of  the 
parties  throiig-hout  the  transaction. 

'^  It  may  be  that  when  an  agent  acts  without  or  beyond  the 
line  of  his  authority,  and  the  principal  incurs  thereby  an  injury, 
he  may  be  held  liable ;  but  here  no  injury  was  done  to  plaintiff 
by  cancellation  of  one  and  acceptance  in  its  place  of  another 
check,  nor,  according  to  the  evidence,  was  the  transaction 
either  without  implied  authority  of  plaintiff  or  such  as  he  would 
or  could  have  reasonably  objected  to  if  present. 

"  The  testimony  of  Griffith  introduced  bv  plaintiff,  shows 
that  after  the  cheek  on  ISTational  Bank  of  Cynthiana  had  been 
protested  for  non-payment,  he,  by  letter,  informed  and  prom- 
ised plaintiff  he  would  go  to  Paris  and  '  fix  it  up,'  and  that 
plaintiff  after  being  notified  of  the  protest  and  return  of  the 
check  to  the  Citizens'  Bank  of  Paris,  remained  away  four  or 
five  days,  making  no  effort  to  collect  it  himself,  is  convincing 
that  he  expected  and  intended  defendant,  as  his  agent,  to  attend 
to  the  matter  of  having  Griffith  fix  it  up. 

"  The  fact  of  the  new  check  being  made  payable  to  the 
cashier  of  defendant  is  no  evidence  of  its  intention  to  assume 
ownership  of  the  check  or  become  liable  to  plaintiff  therefor, 
because,  he  being  absent,  it  had  to  be  drawn  in  that  way  in 
order  to  procure  proper  presentation  and  payment. 

"  It  seems  to  us,  as  this  record  stands,  defendant  incurred 
no  liability  to  plaintiff,  and  the  jury  ought  to  have  been  so 
instructed." 

It  is  held  that  a  collecting  bank  is  not  authorized  to  receive 
in  payment  for  collection,  a  claim  against  itself ;  and  in  the 
case  of  Francis  v.  Evans,  69  Wis.  115,  the  court  holds  that  a 
bank  is  not  authorized  to  receive  in  payment  for  a  collection, 
its  own  certificate  of  deposit,  but  certificates  of  deposit  by 
universal  custom  between  banks  are  treated  as  cash ;  and  where 
a  custom  becomes  universal,  it  is  recognized  by  the  courts 
as  a  law  and  the  courts  will  take  judicial  notice  of  a  universal 
custom. 

In  the  State  of  Iowa  (at  least)  the  court  has  taken  judicial 
notice  of  a  custom  prevailing  where  the  banks  have  treated 
certificates  of  deposit  as  cash. 


cii.  XXXVIII.]  Bankixg.  441 

§  278.  Duty  of  bank  to  collect  interest,  when. 

A  bank  cannot  accept  payment  of  a  note  not  due  and  re- 
lease the  maker  for  interest  for  the  unexpired  time.  It  is 
bound  bv  the  terms  set  out  in  the  collection,  and  a  failure  upon 
the  part  of  the  collecting  bank  to  enforce  the  provisions  of  the 
note  or  other  instrument  left  for  collection,  makes  the  bank 
liable. 

Where  a  certificate  of  deposit  is  left  with  the  bank  for  col- 
lection, which  certificate  is  payable  on  demand  but  would 
have  borne  interest  if  the  deposit  had  remained  in  the  bank 
up  to  a  certain  time  and  no  instructions  were  given  to  the 
bank  as  to  the  time  of  collection,  the  bank  having  accepted 
payment  of  the  principal,  it  is  held  that  it  was  not  guilty  of 
negligence  nor  any  violation  of  agreement  or  instructions  and 
that  it  was  not  liable  for  the  interest.^ 

§  279.  Collecting  bank's  liability  as  indorser. 

A  bank  receiving  paper  for  collection  which  requires  it, 
the  initial  bank,  to  transmit  the  collection  to  another  or  the 
collecting  bank,  should  not  make  itself  a  general  indorser. 

A  general  indorser  is  one  who  warrants  to  all  subsequent 
holders  in  due  course,  that  the  instrument  is  genuine,  and  that 
he  has  title  to  the  paper,  and  that  all  prior  parties  had  power 
to  contract. 

It  is  held,  in  the  case  of  Ferguson  v.  Staples,  82  Me.  159, 
that  the  indorsement  of  a  transfer  of  an  over-due  toA\m  order 
by  the  payee  for  value,  raises  a  contract  on  his  part  that  the 
order  is  genuine  and  is  the  legal  promise  of  the  town  that  it 
purports  to  be;  and  even  after  it  has  been  adjudged  void,  may 
elect  to  sue  the  indorser  upon  his  contract  and  recover  on  the 
order  according  to  its  tenor. 

The  meaning  of  an  indorsement,  as  defined  by  the  court 
of  Minnesota,  is,  that  an  indorser  of  a  promissory  note  engages 
unconditionally  that  it  is  in  every  respect  genuine ; —  that  it 
is  the  valid  instrument  it  purports  to  be,  and  that  the  ostensible 
parties  were  competent.^ 

The  bank  should  qualify  its  indorsement,  using  such  lan- 
guage as  would  negative  a  general  indorsement. 

24lde.   ex'rx,   r.   'ihe   Bremer   Co.  25  Crosby  r.  Wright,  70  Minn.  251. 

Bank,  73  Iowa,  58. 


442  Collections  by  Banks.  [cii.  xxxviii. 

It  is  also  the  dutv  of  the  bank  receiving  a  collection,  if  it 
has  specific  instructions  from  the  owner  of  the  paper  directing 
the  initial  bank  in  its  course  and  duty,  to  transmit  such  in- 
structions to  its  agent,  the  collecting  bank. 

In  the  case  of  Borup  v.  Mininger,  5  Minn.  417,  the  court 
held  that  it  was  the  duty  of  the  initial  bank  to  convey  the 
instructions  received  by  it  from  the  OAvner  to  its  correspondent ; 
and  no  custom  could  absolve  the  bank  from  this  duty,  as  the 
fixing  of  the  liability  of  the  indorser  was  the  vei'v  essence  of 
the  undertaking. 

It  is  also  held  that  the  initial  bank  should  notify  its  corres- 
ponding bank  in  a  foreign  State,  of  the  laws  governing 
protest.^*' 

The  above  authority  also  holds  that  a  failure  to  furnish  the 
corresponding  bank  the  law  governing  such  protests  in  the 
place  or  State  where  the  contract  is  made,  and  by  reason 
thereof  the  corresponding  or  collecting  bank  fails  to  comply 
with  such  law,  that  the  initial  bank  is  liable. 

In  the  States  where  the  new  negotiable  instrument  laws  are 
in  force,  a  bank  receiving  paper  which  has  been  indorsed 
restrictively  for  collection,  it  is  held  that  it  is  liable  as  a  general 
indorser  if  it  subsequently  indorses  the  paper  without  qualifi- 
cation. 

This  rule  is  in  contravention  to  the  rule  adopted  by  the 
Federal  Court. 

The  law  as  laid  down  by  this  court  is  given  in  the  case  of 
United  States  v,  American  Exchange  National  Bank,  70  Fed. 
Rep.  232.  "  This  was  an  action  by  the  United  States  against 
the  American  Exchange  National  Bank  to  recover  the  amount 
of  a  pension  draft  which  defendant  had  collected,  as  collecting 
agent  of  another  bank;  it  appearing  that  the  name  of  the 
payee  had  been  forged  upon  the  draft  after  her  death." 

"Opinion  of  the  Court.  The  pension  draft  in  this  case  was 
paid  to  the  defendant  bank  by  the  Sub-treasui^^  upon  the 
forged  indorsement  of  the  payee's  name  after  her  death.  The 
Bellaire  Bank  of  Ohio  had  previously  cashed  the  draft  upon 
the  forged  indorsement,  and  thereupon  indorsed  it  '  for  col- 
lection '  to  tlie  defendant  bank  at  l^ew  York.  The  latter 
was  the  collecting  correspondent  of  the  Bellaire  Bank  as  re- 

26  Allen   V.   Merchants'   Bank,    22    Wend.    (N.   Y.)    215. 


c'H,  XXXVIII.]  Banking.  443 

gards  its  funds  in  ISTew  York.  The  collection  was  made  in 
good  faith  by  the  defendant  bank  and  the  proceeds  remitted 
to  the  Bellaire  Bank  some  months  before  the  discovery  of  the" 
forgery.  The  indorsement  of  the  forged  draft  by  the  Bellaire 
Bank  showed  npon  its  face  that  the  defendant  was  to  act  as 
collecting  agent  only.  The  defendant  never  had  any  prop- 
erty in  the  draft  or  its  proceeds.  The  later  anthorities  sus- 
tain the  proposition  that  in  any  case  where  the  collecting  agent 
pays  over  the  funds  before  any  notice  of  irregularity  or  fraud, 
the  remedy  is  against  the  principal  alone.  (Bank  v.  Arm- 
strong, 148  U.  S.  50;  White  v.  Bank,  102  U.  S.  658;  Sweeny 
v.  Easter,  1  Wall.  166;  Wells,  Fargo  &  Co.  v.  United  States, 
45  Fed.  337;  National  Park  Bank  v.  Seaboard  Bank,  114  :N'.  Y. 
28,  20  X.  E.  632.) 

"  In  such  cases  the  indorsement  by  the  collecting  agent,  who 
has  no  proprietary  interest,  does  not  import  any  guaranty  of 
the  genuineness  of  all  prior  indorsements,  but  only  of  the 
agent's  relation  to  the  principal,  as  stated  upon  the  face  of 
the  draff;  and  as  this  relation  is  evident  upon  the  draft  itself, 
the  payor  cannot  claim  to  have  been  misled  by  the  indorse- 
ment of  the  agent,  or  any  right  to  rely  upon  that  indorsement 
as  a  guaranty  of  the  genuineness  of  the  payee's  indorsement. 

"  In  the  case  of  Onondaga  Co.  Savings  Bank,  12  C.  C.  A. 
407,  64  Fed.  703,  as  I  find  upon  examination  of  the  record  on 
appeal,  no  question  like  the  present  arose.  The  Onondaga 
Bank  was  in  the  same  situation  as  the  Bellaire  Bank  in  the 
present  case.  It  had  cashed  the  forged  draft  and  was  collect- 
ing the  money  for  its  o^vn  benefit  as  owner  of  the  draft.  Its 
indorsement  imported  a  guaranty  of  the  prior  signatures;  and 
the  defendant's  remedy  here  is  against  the  Bellaire  Bank. 

"  The  direction  of  a  verdict  for  the  defendant  upon  the 
undisputed  facts  was,  I  think,  correct,  and  the  motion  for  a 
new  trial  should  be  denied." 

§  280.  When  bank  liable  for  fraud  or  mistakes. 

Where  a  party  places  in  the  hands  of  a  bank  a  draft  for 
collection  with  instructions  to  hand  the  collection  to  an  at- 
torney, the  bank  failing  to  do  so,  and  in  the  meantime  the 
drawee  became  insolvent,  the  bank  is  liable  for  the  losa.^'^ 

27  Finch  r.  Karste,  56  N.  W.  123. 


444:  Collections  by  Baxks.  [cii.  xxxviii. 

The  measure  of  damages  for  such  negligence  is  prima  facie 
the  amount  of  the  paper  with  interest.^* 

A  bank  is  liable  for  a  careless  mistake,  for  example:  where 
a  note  is  plainly  dated  and  it  mistakes  the  date  and  fails  to 
give  notice,  protest  and  the  like. 

The  Supreme  Court  of  the  State  of  Pennsylvania  says: 

"  Certainly,  when  the  bank  accepts  this  note  for  collec- 
tion, it  became  its  duty  to  use  reasonable  care  and  skill  in 
attending  to  it:  yet  herein  it  is  chargeable  with  a  remarkable 
blunder  in  treating  the  date  15th  December  as  if  it  were  the 
5  th.  There  can  be  no  doubt  that  the  15th  is  there,  for  any- 
body can  see  it  who  looks,  and  the  court  could  commit  no 
error  in  saying  that  much.  But  the  first  figure  was  not  so 
strongly  marked  as  the  other,  and  therefore  the  bank's  officers 
interpreted  it  out  rather  than  overlooked  it,  and  thus  made  a 
mistake  and  had  the  note  presented  for  payment  ten  days  too 
soon,  and  not  at  the  proper  time,  and  thus  discharged  the  en- 
dorser. This  was  clear  carelessness;  for,  if  there  was  any 
doubt  about  the  date,  the  bank  ought  to  have  refused  the  col- 
lection of  it,  or  to  have  got  the  holder  to  state  what  was  the 
true  date,  or  to  have  presented  it  on  both  days.  To  guess  a 
meaning  contrary  to  the  expression,  is  not  careful." 

"Where  a  bank  holding  a  note  for  collection  receives  the 
amount  necessary  to  pay  the  same  from  an  agent  of  the  maker, 
and  by  mistake  gave  up  to  him  a  similar  note  of  another  person 
and  returned  the  first  note  to  its  owner,  to  whom  the  maker 
paid  it  on  demand  and  immediately,  though  four  days  after 
the  payment  to  the  bank,  upon  examining  the  note  in  the 
agent's  hands,  discovering  the  mistake,  returned  it  to  the  bank 
and  demanded  back  his  money.  Held,  that  he  was  entitled 
to  it,  although  the  bank  liad  in  the  meanwhile  paid  the  amount 
to  the  owner  of  the  other  note,  the  maker  of  which  was  in- 
solvent and  discharged  for  want  of  demand.^ 

The  question  of  mistake  or  more  properly  negligence  is 
one  of  fact. 

In  the  case  of  Baltimore  &  Ohio  Railroad  Co.  v.  Worthing- 
ton,  21  Md.  275,  the  court  says: 

*'An  absence  or  want  of  such  care  as  the  law  requires  in 

28  Commercial  Bank  r.  Red  River  29  Andrews    v.    Suffolk    Bank,    12 

Valley  Nat.  Bank,  79  N.  W.  859.  Gray    (Mass.)    461. 


cir.  XXXVIII.]  Baxkixg.  445 

the  performance   of  anv  given  undertaking,      *     *     *     is   a 
fact  the  finding  of  which  is  for  the  jury." 

The  rule  is  that  if  there  is  no  dispute  as  to  the  fact,  the 
question  of  negligence  is  one  of  law.^*^ 

§  281.  Liability  of  initial  bank  for  default  of  its  agents. 

As  previously  stated,  a  bank  must  use  reasonable  care  in 
selecting  and  employing  its  correspondents,  notaries  and  other 
agents  to  assist  in  or  make  collections  for  it. 

Where  a  collection  is  received  by  a  bank  and  it  agrees  to 
undertake  the  obligation,  it  frequently  becomes  necessary  to 
employ  another  bank,  notaries  and  agents  to  perform  this 
duty  and  make  the  collection, 

When  the  paper  is  payable  at  a  distance,  this  duty  arises. 

The  bank  then  transmits  the  collection  to  its  regular  corres- 
pondent, if  it  has  one,  at  the  place  where  the  paper  is  payable, 
if  not,  it  selects  a  bank  and  sends  the  collection  with  instruc- 
tions, if  special,  how  to  proceed  and  what  to  do.  The  selec- 
tion having  been  made,  and  the  paper  forwarded,  the  initial 
bank,  according  to  the  weight  of  authority,  makes  itself  liable 
to  the  owner  of  the  paper  for  any  failure  of  its  correspondent 
in  the  performance  of  its  duty. 

If  the  initial  bank  has  no  regular  correspondent  at  the  place 
where  the  collection  is  to  be  made,  before  employing  an  agent, 
its  duty  is  to  ascertain  what  bank  or  person  at  that  place  is 
responsible. 

Xegligence  of  the  initial  bank  in  this  particular,  makes  the 
bank  liable. 

If  a  bank  is  employed  which  is  insolvent,  where  at  the  time 
of  the  employment  it  was  ^dthin  the  means  of  the  initial  bank 
to  ascertain  tliis  fact,  and  it  failed  to  do  so,  the  collection 
being  made  by  the  insolvent  bank  and  the  proceeds  afterwards 
lost,  the  initial  bank  is  held  liable. 

The  initial  bank  is  also  liable  where  it  selects  an  nnsnitable 
and  particularly  incompetent  person  to  give  notice  to  in- 
dorsers. 

§  282.  Who  are  suitable  agents. 

The  debtor  cannot  under  any  condition  or  circumstance,  be 
regarded  as  a  suitable  agent  to  be  entrusted  with  the  collection 

30  Selz  r.  Collins,  .55  Mo.  App.  55. 


446  _  Collections  by  Banks.  [ch.  xxxviii. 

of  an  obligation  owing  by  himself.  Common  sense  teaches 
that  such  "a  person  cannot  and  should  not  be  employed;  bnt 
very  frequently  this  common  sense  rule  is  set  aside  and  dis- 
regarded, and  banks  send  a  collection  direct  to  the  bank  owing 
the  debt  requesting  that  it  remit  the  amount. 

If  the  debtor  bank  failed  to  do  so  and  a  loss  occurs,  this  is 
gross  negligence  and  the  initial  bank  is  liable. 

In  the  case  of  German  Xational  Bank  of  Denver  v.  Burns, 
12  Colo.  539,  the  court  veiy  pertinently  asks  this  question: 
"  How  can  the  debtor  be  the  proper  agent  of  the  creditor  in 
the  matter  of  collections  of  debt  ?  " 

The  court  continuing,  says:  "  If  the  debtor  is  embarrassed, 
there  is  the  temptation  to  delay,  and,  if  wanting  in  integrity, 
there  is  the  opportunity  to  destroy  and  deny  the  evidence  of 
indebtedness." 

The  Supreme  Court  of  Illinois  presents  the  unreasonable- 
ness and  negligence  of  such  a  practice  in  the  follo^\'ing  ques- 
tions and  language: 

"  Can  it  be  said  to  be  reasonable  care  in  selecting  an  agent, 
to  select  one  known  to  be  interested  against  the  principal  ? 
To  place  the  principal  entirely  in  the  hands  of  his  adversary  ?  " 

The  court  further  says: 

"  Surely  it  could  not  be  reasonable  care  and  diligence  in  an 
agent  holding  for  collection,  a  promissory  note  given  by  one 
individual  to  another  individual  to  send  the  promissory  note 
to  the  maker,  trusting  to  him  to  make  payment,  delay  it  or 
destroy  the  evidence  of  indebtedness  and  repudiate  the  trans- 
action as  his  conscience  might  permit." 

It  is  a  very  common  custom  and  a  rule  generally  followed 
l)y  banks  to  remit  drafts  and  checks  directly  to  the  bank  o^ving 
them,  and  request  that  the  remitting  bank  be  credited  with 
the  collection  and  that  notice  of  such  credit  be  immediatelv 
given. 

This  custom  or  rule  is  not  uncommon,  and  as  stated  is  most 
always  practiced  especially  between  corresponding  banks;  but 
this  custom  although  daily  practiced,  does  not  excuse  or  re- 
lieve the  initial  bank  from  liability  in  case  of  loss. 

It  is  not  reasonable  care  in  selecting  an  agent  to  collect  a 

debt,  to  select  the  debtor  himself."''^ 

31  Tlie  Drovers'  Xat.  Bank  r.  The       riiiladolpliia  r.  nondman  ot  al.,  109 
Anplo-Amprican    Packinfj    Co..     117       Penn.  St.  422,  78  N.  W.  980. 
111.   100;   Merchants'  Nat.  Bank  of 


CH.  XXXVIII.]  Banking.  447 

The  court  holds,  in  the  case  of  Davis  v.  First  iS^ational  Bank 
of  Fresno,  118  Cal.  600,  that  a  bank  where  negligence  is 
charged,  shonld  bo  permitted  to  show  the  usage  of  banks  in 
regard  to  the  collection  of  paper  presented  by  persons;  and, 
if  in  making  the  collection  it  follows  the  course  usually  taken 
by  banks  under  similar  circumstances,  it  cannot  be  held  to 
have  been  negligent;  and  in  an  action  against  the  initial  bank 
to  recover  the  value  of  the  collection  on  account  of  its  negli- 
gence in  so  sending  it,  evidence  is  admissible  that  the  conduct 
of  the  bank  was  in  accordance  with  the  usage  of  banks  when 
making  collections  of  paper  presented  by  persons  who  were 
unknown  to  them.  But  a  usage  which  is  in  contravention  of 
law  cannot  be  shown  or  pleaded  to  excuse  a  party  in  the  per- 
formance of  a  reasonable  duty. 

§  283.  Banks  employing  notaries  —  Conflict  of  authority  as  to 
liability. 

A  bank  has  the  authority  to  employ  notaries  to  make  pro- 
tests, give  notice,  and  generally  to  receive  collections  for  it; 
and  if  employed  by  the  cashier,  the  employment  is  construed 
to  be  an  employment  by  the  bank. 

The  important  question  affecting  the  bank  is  the  one  of 
laches  and  defaults  by  the  notary.  Does  the  bank  become 
liable  to  the  owner  of  the  collection  for  such  defaults  ? 

This  question  has  received  considerable  attention  and  has 
been  discussed  by  the  courts  of  many  States  at  considerable 
length. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
Britton  V.  Mccolls,  104  U.  S.  757,  in  discussing  the  question 
as  to  the  duty  and  liability  of  banks  as  collecting  agents,  and 
their  responsibility  for  the  acts  of  the  notary  to  Avhom  the 
notes  sent  to  them  for  collection  are  delivered  for  present- 
ment, demand  and  protest,  states  the  law  to  be  as  follows: 

"  It  is  enough  here  that  the  notary  was  not,  in  this  matter, 
the  agent  of  the  bankers.  lie  was  a  public  officer  whose 
duties  \vere  prescribed  by  law;  and  when  the  notes  were 
placed  in  his  hands  in  order  that  such  steps  should  be  taken 
by  him  as  would  bind  the  indorsers  if  the  notes  were  not  paid, 
he  became  the  agent  of  the  holder  of  the  notes.  For  any 
failure  on  his  part  to  perform  his  whole  duty,  he  alone  was 


448  COLLECTIOXS  BY  BaXKS.  [cII.  XXXVIII. 

liable;  the  bankers  were  no  more  liable  than  they  would  have 
been  for  the  nnskillfnlness  of  a  lawyer  of  reputed  ability  and 
learning  to  whom  they  might  have  handed  the  notes  for  col- 
lection in  the  conduct  of  a  suit  brought  upon  them." 

The  rule  is  undoubtedly  established  by  a  great  majority  of 
the  courts  of  the  various  States  and  the  Federal  Courts,  to  be 
that  if  the  collecting  bank  uses  reasonable  care  in  the  selec- 
tion of  a  notary,  it  cannot  be  held  liable  for  his  acts  or 
defaults. •'^^ 

§  284.  Officers  of  bank  acting  as  notary. 

Another  important  question  to  the  banker  upon  this  subject 
is:  Can  the  president  of  a  bank  or  other  officer,  who  is  also  a 
notary  public,  act  for  the  bank;  and  if  so,  does  his  laches  or 
defaults  as  notary  relieve  the  bank  of  liability? 

In  the  case  of  "Wood  River  Bank  y.  First  National  Bank  of 
Omaha,  36  ^NTeb.  T44,  the  court  holds  that  where  a  note  is 
received  by  the  bank  with  instructions  to  protest  if  not  paid, 
and  the  president  of  the  bank  who  is  a  notary,  receives  the  note, 
it  having  been  delivered  to  him  for  protest,  he,  failing  to  give 
the  notice,  wdiich  failure  thereby  operates  as  a  discharge  of  the 
indorser,  the  bank  is  liable.  The  contrary  doctrine  is  presented 
in  the  case  of  May  v.  Jones,  88  Ga.  308,  311. 

The  court  in  its  opinion  says : 

"  The  plaintiff's  theory  is  that,  as  Jones,  the  notary  public, 
M'as  also  an  employee  and  agent  of  the  bank,  '  the  action  of 
defendant  Jones  in  the  matter,  he  acting  under  the  authority 
of  the  defendant  bank,  is  the  action  of  said  bank.'  This  is  all 
the  allegation  touching  the  bank's  liability.  Although  there 
is  conflict  in  the  cases,  the  prevailing  and  better  holding  seems 
to  be  that  a  bank  is  not  liable  for  the  negligence  or  misconduct 
of  a  notary  employed  by  it  to  protest  negotiable  paper.  The 
reason  is  that  the  notary  is  not  a  mere  agent  or  servant  of  the 
bank,  but  is  a  public  officer,  sw^orn  to  discharge  his  duties  prop- 
erly. He  is  under  a  higher  control  than  that  of  a  private  prin- 
cipal. He  owes  duties  to  the  public,  which  must  be  the  supreme 
law  of  his  conduct.      Consequently,  when  he  acts  in  his  official 

32  First  Nat.  Bank  of  :\Ianning  r.  Britton  r.  Niccolls,   104  U.  S.  7G6 ; 

German    Bank   of   Carroll    Co..    107  Bank   r.    Butler,   41    Oliio    St.   519; 

Iowa,    .543;    Belleniiro    r.    Bank    of  Isham  r.  Post,  141  N.  Y.  100. 
United  States,  4  Whart.   (Pa.)    105; 


en.  XXXVIII.]  Banking.  449 

capacity,  the  bank  no  longer  has  control  over  him,  and  cannot 
direct  how  his  duties  shall  be  done.  *  ^  *  That  the  notary 
is  also  an  employee  and  agent  of  the  bank  does  not  alter  the 
case.  There  is  still  a  sharp  dividing  line  between  his  duties  as 
agent  and  his  duties  as  a  public  officer.  When  his  public 
service  comes  into  play,  his-  private  service  is  for  the  time 
suspended." 

The  theory  of  this  opinion  is,  that  he  is  not  a  mere  agent  of 
the  bank,  but  is  a  public  officer,  and  while  acting  in  this  capacity 
he  lays  aside  his  pri^'ate  status,  and  that  it  is  merged  in  his 
public  office,  he  is  not  and  cannot  be  performing  the  duties  of 
his  private  office. 

This  logic  and  reasoning  seems  to  be  sound,  but  it  is  defec- 
tive in  this  particular.  The  duties  of  his  private  office  are  not 
laid  aside,  they  are  not  merged  into  those  of  the  public  office  at 
any  time.  His  position  as  the  president  of  the  bank  and  his 
office  as  notary  public  are  positions  which  he  may  hold  at  the 
same  time.  If  the  bank  of  which  he  is  president  receives  a 
note  for  collection  and  he,  as  a  notary,  assumes  the  authority 
or  is  directed  to  protest  the  note,  if  he  acts  and  proceeds  to 
protest  the  note  (being  j^resident  of  the  bank)  he  acts  for  the 
bank  as  its  agent,  and  at  the  same  time  performs  the  acts  re- 
quired and  defined  of  notaries  by  the  law  governing  and  pre- 
scribing their  duties.  If  he  neglects  to  serve  the  notice  of 
protest  within  the  time  required,  and  the  indorser  is  released, 
the  bank  could  not  deny  that  while  acting  as  notary  his  position 
as  president  of  the  bank  or  agent,  which  is  one  and  the  same 
thing,  had  been  suspended  to  allow^  him  to  act  as  notary. 

He  is  holding  the  dual  position  as  agent  and  officer  of  the 
bank  and  the  office  of  notary  public,  and  acts  in  both  capacities 
or  positions  at  the  same  time. 

And  the  dual  position  and  responsibility,  if  assumed,  should 
not  excuse  the  bank  for  a  failure  by  its  agent  in  the  perform- 
ance of  his  duty  while  acting  for  it  as  notary  public. 

Where  a  bank  selects  or  appoints  a  notary  to  act  for  it  for 

a  specified  time,  and  for  it  required  a  bond  for  the  faithful 

discharge  of  his  duties,  and  failing  to  give  notice  to  an  indorser 

of  a  note  by  which  the  indorser  was  discharged,  the  notary  is 

20 


450  Collections  by  Banks.  [ch.  xxxviii. 

not,  in  sncli  a  case,  an  independent  officer,  bnt  is  the  agent  of 
the  bank."^ 

The  rule  then  ma^'  be  laid  do^^Tl  as  follows:  flial  irherc  a 
hank  delivers  a  note  io  a  notary  for  protest,  etc.,  it  will  not  he 
liahle  for  the  default  of  the  latter;  hut  where  an  officer  of  a  hank 
is  a  notary  puhlic  and  fails  to  discharge  his  duty  as  such  notary, 
he  is  held  to  he  the  agent  of  the  hank  and  the  hanh  ivill  he  liahle 
for  h  is  negligence. 

§  285.  Initial  bank's  liability  for  default  of  its  correspondent 
—  Conflict  of  authorities. 

The  Supreme  Court  of  the  United  States,  in  the  case  of  The 
Exchange  National  Bank  v.  Third  National  Bank,  112  U.  S. 
276,  with  great  care  reviews  the  various  cases  of  the  States  and 
finally  lavs  down  the  general  rule  of  law  to  be,  that  the  initial 
hank  is  liahle  for  sucJi  damages  as  it  had  sustained  hy  the  negli- 
gence of  its  agent  or  collecting  hank. 

The  facts  in  the  case  and  opinion  of  the  court  are  given  in 
full. 

Statement  of  facts: 

"  The  facts  found  were  these,  in  substance :  The  drafts  were 
drawn  by  Rogers  &  Burchfield,  at  Pittsburgh,  to  the  order  of 
J.  D.  Baldwin,  and  by  him  indorsed,  on  '  Walter  M.  Conger, 
Sec'y  Newark  Tea  Tray  Co.,  Newark,  N.  J.,'  and  were  dis- 
counted before  acceptance,  by  the  plaintiff,  at  Pittsburgh,  for 
the  drawers.  They  bore  different  dates,  from  June  8,  1875,  to 
September  20,  1875,  and  were  in  all  other  respects  similar 
except  as  to  the  sums  payable,  and  in  the  following  form: 

'$1,042.75.  Pittsburgh.  June  8,  1875. 

Four  months  after  date,  pay  to  the  order  ot  .7.  D.  Baldwin  ten 
hundred  and  forty-two  75/100  dollars,  for  account  rendered,  value 

re<-eived,  and  charge  to  account  of 

Rogers  &  Burchfield. 
To  Walter  M.  Conger, 

Sec'y  Newarli  Tea  Tray  Co..  Newark.  N.  .7.' 

33Gerhardt  v.  Boatman's  Sav.  r.  National  Bank  of  Omalia,  36  Neb. 
Inst.,  38  Mo.  60;  Wood  River  Bank       744. 


en.  XXXVIII.]  Bankixg.  451 

"  They  were  transmitted  for  collection  at  different  times 
before  maturity,  by  the  plaintiff  to  the  defendant,  in  letters 
describing  them  by  their  numbers  and  amounts,  and  by  words 
'  Newark  Tea  Tray  Co.'  They  were  sent  by  the  defendant  to 
its  correspondent,  the  First  National  Bank  of  Xewark,  enclosed 
in  letters  describing  them  generally  in  the  same  way,  except 
that,  in  two  of  the  letters  they  were  described  as  drawn  on 
'  W.  M.  Conger,  Sec'y.'  The  drafts  were  received  by  the  de- 
fendant, in  New  York,  ^^^thin  a  day  or  two  of  the  time  of  dis- 
counting them.  They  were  presented  by  the  First  National 
Bank  of  Newark,  to  Conger,  for  acceptance,  who,  except  in  one 
instance,  accepted  them. by  writing  on  the  face. these  words: 
'  Accepted,  payable  at  the  Newark  National  Banking  Co., 
"Walter  M.  Conger.' 

"'  When  the  acceptances  were  taken,  the  time  of  payment  was 
so  far  distant,  that  there  was  sufficient  time  to  communicate  to 
the  plaintiff  the  form  of  the  acceptance,  and  for  the  plaintiff 
thereafter  to  give  further  instructions  as  to  the  form  of  accept- 
ance. The  Newark  bank  held  the  drafts  for  payment,  but  the 
plaintiff  was  not  advised  of  the  form  of  acceptance  until,  on  the 
13th  and  19th  of  October,  two  of  them  were  returned  to  it  by 
the  defendant.  xVt  that  time  the  drawers  and  indorser  were 
insolvent,  but  the  drawers  were  in  good  credit  when  the  drafts 
were  discounted  by  the  plaintiff.  The  drafts  were  duly  pro- 
tested for  nonpayment,  but  none  of  them  were  paid.  The 
Newark  Tea  Tray  Company  is  a  New  Jersey  corporation,  doing^ 
business  in  that  State,  and  Walter  M.  Conger  is  its  secretary. 

"  The  drafts  were  represented  to  the  plaintiff  Ijy  Burchfield, 
one  of  the  drawers,  who  offered  them  for  discount,  to  be  '  the 
paper  of  the  Newark  Tea  Tray  Company,'  drawn  against  ship- 
ments of  iron  by  Rogers  &  Burchfield  to  that  company,  and 
were  discounted  as  such  by  the  plaintiff.  He  also  represented 
that  Walter  M.  Conger  was  the  person  who  examined  the  ship- 
ments of  iron  and  '  accepted  the  drafts,'  and  that  they  were 
drawn  in  this  form  for  the  convenience  and  accommodation  of 
the  company.  On  drafts  of  Rogers  &  Burchfield  on  the  '  New- 
ark Tea  Tray  Co.,'  dated  May  4,  1874,  May  20,  1874,  and 
June  30,  1874,  discounted  by  the  plaintiff,  and  transmitted  for 
acceptance  to  the  defendant,  and  by  it  sent  to  the  same  Newark 
bank,  that  bank  took  acceptances  from  Walter  M.  Conger  indi- 


452  Collections  by  Laxks.  [cir.  xxxviii. 

viduallv,  without  notice  to  the  plaintiff;  and  Conger,  during  the 
time  drafts  sent  by  the  plaintiff"  to  the  defendant,  addressed  to 
the  '  Xewark  Tea  Tray  Co.'  and  to  '  AValter  M.  Conger,  Sec'y 
Ne"wark  Tea  Tray  Co.,  Newark,  N.  J.,'  informed  the  cashier  of 
the  Xewark  bank  that  he  would  not  accept  these  drafts  in  his 
official  capacity  as  secretary. 

The  judgment  was  in  favor  of  the  i^ew  York  bank.  The 
Pittsburgh  bank  sued  out  this  writ  of  error  to  reverse  it." 

Opinion  of  the  Court: 

''  Mr.  Justice  Blatchford  delivered  the  opinion  of  the  court. 
He  stated  the  facts  in  the  foregoing  language,  and  continued: 

"  The  negligence  alleged  consisted  in  not  obtaining  accept- 
ance of  the  drafts  by  the  Tea  Tray  Company,  or  having  them 
protested  for  non-acceptance  by  that  company,  or  giving  notice 
to  the  plaintiff  of  such  non-acceptance,  and  in  failing  to  give 
notice  to  the  plaintiff  that  the  company  would  not  accept  the 
drafts  or  that  Conger  Avould  not  accept  them  in  his  official 
capacity. 

"  The  decision  of  the  Circuit  Court  proceeded  on  the  ground 
that,  at  most,  the  defendant  erred  in  judgment  as  to  the  import 
of  the  address  on  the  drafts;  that  it  had  no  information  to 
qualify  or  explain  such  import;  that  for  it  to  regard  the  drafts 
as  addressed  to  Conger  in  his  individual  capacity  was  not  a 
culpable  error,  because  it  followed  decisions  to  that  effect  made 
by  courts  of  the  highest  standing  in  Xew  Jersey  and  Xew  York 
and  elsewhere;  that  it  exercised  intelligent  and  cautious  judg- 
ment on  the  information  it  had ;  and  that  the  plaintiff  knew  who 
was  the  intended  drawee,  as  understood  between  it  and  the 
drawers,  and  ought  to  have  advised  the  defendant,  but  failed 
to  do  so.     (-i  Fed.  Ecp.  20.) 

"  The  only  question  presented  by  the  record  is  that  of  the 
sufficiency  of  the  facts  found  to  support  the  judgment. 

"  It  is  contended  by  the  defendant,  that  its  liability,  in  taking 
at  Xew  York  for  collection,  these  drafts  on  a  drawee  at  Xewark, 
extended  merely  to  the  exercise  of  due  care  in  the  selection  of 
a  competent  agent  at  Xewark,  and  to  the  transmission  of  the 
drafts  to  such  agent,  with  proper  instructions;  and  that  the 
Xewark  bank  was  not  its  agent,  but  the  agent  of  the  plaintiff, 


CH.  XXXVIII.]  Baxking,  453 

so  that  the  defendant  is  not  liable  for  the  default  of  the  Xewark 
Lank,  due  care  having  been  used  in  selecting  that  bank.  Such 
would  be  the  result  of  the  rule  established  in  Massachusetts,^* 
in  Maryland,^*'"*  in  Connecticut,^^  in  Missouri,^*^  in  Illinois,^"  in 
Tennessee,^^  in  lowa,^^  in  Wisconsin.**^ 

"  The  authorities  which  support  this  rule  rest  on  the  propo- 
sition that,  since  what  is  to  be  done  by  a  bank  employed  to 
collect  a  draft  payable  at  another  place,  cannot  be  done  by  any 
of  its  ordinary  officers  or  servants,  but  must  be  entrusted  to  a 
sub-agent,  the  risk  of  the  neglect  of  the  sub-agent  is  upon  the 
party  employing  the  bank,  on  the  view  that  he  has  impliedly 
authorized  the  employment  of  the  sub-agent;  and  that  the  inci- 
dental benefit  which  the  bank  may  receive  from  collecting  the 
draft,  in  the  absence  of  an  express  or  implied  agreement  for 
compensation,  is  not  a  sufficient  consideration  from  which  to 
legally  infer  a  contract  to  warrant  against  loss  from  negligence 
of  the  sub-agent. 

"  The  contrary  doctrine  that  a  bank  receiving  a  draft  or  bill 
of  exchange  in  one  State  for  collection  in  another  State  from 
a  drawee  residing  there,  is  liable  for  neglect  of  duty  occurring 
in  its  collection,  whether  arising  from  the  default  of  its  o^vn 
officers  or  from  that  of  its  correspondent  in  the  other  State,  or 
an  agent  employed  by  such  correspondent,  in  the  absence  of 
any  express  or  implied  contract  varying  such  liability,  is  estab- 
lished by  decisions  in  Xew  York,  Allen  v.  Merchants'  Bank, 
22  Wend.  215;  Bank  of  Orleans  v.  Smith,  3  Hill,  560;  Mont- 
gomery County  Bank  v.  Albany  City  Bank,  3  Selden,  459; 
Commercial  Bank  v.  Union  Bank,  1  Kernan  (11  JST.  Y.)  203, 
212;  Ayrault  v.  Pacific  Bank,  47  X.  Y.  570;  in  Xew  Jersey, 
Titus  V.  Mechanics  National  Bank,  6  Yroom.  (35  X.  J.  L.  588); 
in  Pennsylvania,  Wingate  v.  Mechanics'  Bank,  10  Pa.  St.  104; 
in  Ohio,  Reeves  v.  State  Bank,  8  Ohio  St.  465 ;  and  in  Indiana, 
Tyson  v.  State  Bank,  6  Blackford,  225. 

34  Fabens  v.  Mercantile  Bank.  2.3  37  ^^tna  Ins.  Co.  v.  Alton  City 
Pick.  330;  Dorchester  Bank  v.  New       Bank,  25  Ilk  221. 

England  Bank,  1  Cush.  177.  38  Bank  of  Louisville  r.  First  Nat. 

34a  Jackson  v.  Union  Bank,  6  Har.  Bank,  8  Baxter,  101. 

&  .Johns.   146.  39  Guelich  v.  National  State  Bank, 

35  Lawrence    v.    Stoninjjton    Bank,  56  lowaj  434. 

6  Conn.  521;  East  Haddam  Bank  V.  40    Stacy   v.   Dane   Co.    Bank,    12 

Scovill.  12  Conn.  303.  Wis.  629. 

aeDfiiy    r.    Butchers'    &    Drovers' 
Bank.   50  Mo.   94. 


454  Collections  by  Baxks  [cil  xxxviii. 

"  It  has  been  so  held  in  the  second  circuit,  in  Kent  v.  Dawson 
Bank,  13  Blatchford,  237;  and  the  same  view  is  supported  by 
Taber  v.  Perrot,  2  Gall.  (U.  S.)  565,  and  by  the  English  cases 
of  Van  "Wart  v.  Woolley,  3  B.  &  C.  439;  S.  C,  5  D.  &  R.  374, 
and  Mackersy  v.  Ramsays,  9  CI.  &  Fin.  818.  In  the  latter  case, 
bankers  in  Edinburgh  were  employed  to  obtain  payment  of  a 
bill  drawn  on  Calcutta.  They  transmitted  it  to  their  cor- 
respondent in  London,  who  forwarded  it  to  a  house  in  Calcutta, 
to  whom  it  was  paid,  but,  that  house  having  failed,  the  bankers 
in  Edinburgh,  being  sued,  were,  by  the  House  of  Lords,  held 
liable  for  the  money,  on  the  ground  that  they,  being  agents  to 
obtain  payment  of  the  bill,  and  payment  having  been  made, 
their  principal  could  not  be  called  on  to  suffer  any  loss  occa- 
sioned by  the  conduct  of  their  sub-agents,  between  whom  and 
himself  no  privity  existed. 

"  The  question  under  consideration  was  not  presented  in 
Bank  of  AVashington  v.  Triplett,  1  Pet.  25;  for  although  the 
defendant  bank  in  that  case  was  held  to  have  contracted  directly 
with  the  holder  of  the  bill  to  collect  it,  the  negligence  alleged 
was  the  negligence  of  its  own  officers  in  the  place  where  the 
bank  was  situated. 

"In  Hoover  v.  AVise,  91  L".  S.  308,  a  claim  against  a  debtor 
in  Nebraska  was  placed  by  the  creditor  in  the  hands  of  a  collect- 
ing agency  in  Xew  York,  with  instructions  to  collect  the  debt, 
and  with  no  other  instructions.  The  agency  transmitted  the 
claim  to  an  attorney-at-law  in  x^ebraska.  The  attorney  received 
the  amount  of  the  debt  from  the  debtor  in  Nebraska  in  fraud 
of  the  bankruj)t  law,  and  paid  it  over  to  the  agency,  but  the 
money  did  not  reach  the  hands  of  the  creditor.  The  assignee 
in  bankruptcy  having  sued  the  creditor  to  recover  the  money, 
this  court  (three  justices  dissenting)  held  that  the  attorney  in 
ISTebraska  was  not  the  agent  of  the  creditor,  in  such  a  sense  that 
his  knowledge  that  a  fraud  on  the  bankrupt  law  was  being  com- 
mitted was  chargeable  to  the  creditor  on  the  ground  that,  the 
collecting  agency  having  undertaken  the  collection  of  the  debt, 
and  employed  an  attorney  to  do  so,  the  attorney  employed  by  it, 
and  not  by  the  creditor,  was  its  agent  and  not  the  agent  of  the 
creditor;  and  the  creditor  was  held  not  to  be  liable  to  the 
assignee  in  bankruptcy  for  the  money.  In  the  opinion  of  the 
court,  it  is  said,  that  the  case  falls  wathin  the  decisions  in  the 


cji.  XXXVIII.]  Banking.  455 

above-mentioned  cases  of  Reeves  v.  State  Bank,  8  Ohio  St.  465; 
Mackersy  v.  Ramsays,  9  CI.  &  Fin.  818;  Montgomery  County 
Bank  v.  Albany  City  Bank,  3  Seklen,  459;  Commercial  Bank 
V.  Union  Bank,  1  Kernan,  203,  and  Allen  v.  Merchants'  Bank, 
22  Wend.  215;  and  it  is  said  that  those  cases,  the  first  three  of 
which  are  stated  at  length,  show  '  that  where  a  bank,  as  a  collec- 
tion agency,  receives  a  note  for  the  purposes  of  collection,  its 
position  is  that  of  an  independent  contractor,  and  the  instru- 
ments employed  by  such  bank  in  the  business  contemplated  are 
its  agent  and  not  the  sub-agents  of  the  owner  of  the  note.'  The 
court  proceeds  to  say,  that  those  authorities  go  far  towards 
establishing  the  position,  that  the  collecting  agency  was  an  inde- 
pendent contractor,  and  that  the  attorney  it  employed  was  its 
agent  only,  and  not  in  such  wise  the  agent  of  the  defendant  as 
to  make  the  defendant  responsible  for  the  knowledge  of  the 
attorney  in  Xebraska. 

"  The  court  then  cites,  as  a  case  in  point,  Bradstreet  v.  Ever- 
son,  72  Pa.  St.  124,  as  holding  that  where  a  commercial  agency 
at  Pittsburgh  received  drafts  to  be  collected  at  Memphis,  and 
sent  them  to  its  agent  at  Memphis,  who  collected  the  money  and 
failed  to  remit  it,  the  agency  at  Pittsburgh  was  to  be  regarded 
as  undertaking  to  collect,  and  not  merely  receiving  the  drafts 
for  transmission  to  another  for  collection,  and  as  being  liable 
for  the  negligence  of  its  agent  at  Memphis.  It  also  cites,  as  to 
the  same  purport,  Lewis  v.  Peck,  10  Ala.  142,  and  Cobb  v. 
Becke,  6  Ad.  &  El.  930.  It  then  says  that  these  authorities 
fix  the  rule,  before  stated,  on  which  the  decision  is  rested.  So 
far  from  there  being  anything  in  that  case  which  goes  to  exon- 
erate the  defendant  in  the  case  at  bar,  its  reasoning  tends 
strongly  to  affirm  the  principle  on  which  the  defendant  must  Ix? 
held  liable.  Indeed,  its  language  supports  the  view  that  the 
IS'ewark  bank,  in  this  case,  would  not  be  liable  directly  to  the 
plaintiff. 

"  If  that  be  so,  and  the  defendant  is  not  liable,  the  plaintit)' 
is  without  remedy. 

"  The  case  of  Britton  v.  Xiccolls,  104  U.  S.  757,  is  cited  to 
show  that  the  defendant  is  not  liable.  In  that  case,  the  defend- 
ants, bankers  in  Xatchez,  Mississippi,  received  from  the  plain- 
tiff, a  resident  of  Illinois,  for  collection,  two  promissory  notes, 
dated  at  Xatchez,  but  not  stating  any  place  of  payment.     They 


45G  C(3LLECTioxs  BY  Banks.  [cii.  xxxviii. 

"srere  sent  to  the  defendants  through  a  banking  house  in  Bloom- 
ington,  Illinois,  with  instructions  to  collect  them,  if  paid,  and, 
if  not,  to  protest  them  and  give  notice  to  the  indorsers.  The 
defendants  placed  the  notes  in  the  hands  of  a  reputable  notary 
in  Xatchez  to  make  demand  of  payment  and  give  notice  to  the 
indorsers.  It  vas  held  that  the  defendants  were  not  liable  for 
negligence  on  the  part  of  the  notary,  Avhereby  the  liability  of 
a  responsible  indorser  was  released.  The  negligence  consisted 
in  not  presenting  the  notes  to  the  maker  at  maturity  and  de- 
manding payment.  The  maker  resided  twelve  or  fifteen  miles 
from  Xatchez  and  had  no  domicile  or  place  of  business  in 
Xatchez.  Xo  information  as  to  his  residence  was  given  to  the 
defendants  with  the  notes,  and  the  plaintiff  was  ignorant  of  it. 
All  the  instructions  which  the  defendants  gave  to  the  notary 
were  given  on  the  several  days  the  notes  matured,  when  they 
handed  the  notes  to  the  notary  with  instructions  to  demand  pay- 
ment, and,  if  they  were  not  paid,  to  protest  them  and  send  no- 
tice of  non-payment  to  the  indorsers.  The  notary  knew  where 
the  maker  resided  and  that  he  had  no  place  of  business  in 
Xatchez;  but  he  inquired  for  him  at  three  public  places  in 
Xatchez,  and  not  finding  him,  protested  the  notes  for  non- 
payment, and  gave  notice  to  the  indorsers.  The  defendants 
had  inquired  at  Xatchez  as  to  the  residence  of  the  maker,  but 
had  not  learned  it  and  had  sent  notices  to  him  through  the  post- 
ofiice  there,  of  the  amount  and  date  of  maturity  of  the  notes,  a 
reasonable  length  of  time  in  advance. 

"  On  these  facts  it  is  apparent  that  the  only  question  raised, 
was  as  to  the  liability  of  bankers  in  Xatchez,  in  respect  to  a 
note  sent  to  them  for  collection,  dated  at  Xatchez  and  not  pay- 
able at  any  specified  place  there  or  elsewhere,  for  the  negligence 
of  a  public  notary  there.  The  suit  was  not  against  the  banking 
h(>use  in  Bloomington,  which  was  only  the  agent  to  transmit  the 
notes  to  the  defendants  for  collection.  The  opinion  of  the 
court  states  the  question  to  be  as  to  '  the  liability  of  the  collect- 
ing bankers,  for  the  manner  in  which  the  notary  to  whom  the 
n»'tes  are  delivered  for  presentment  and  protest  discharges  his 
duty.' 

"  The  court  says: 

"  '  The  notes  being  dated  at  Xatchez,  the  presumption  of  law, 
in  the  absence  of  other  evidence  on  the  subject,  is,  that  that 


CH.  XXXVIII.]  Banking.  457 

was  the  place  of  residence  of  the  maker,  and  that  he  contem- 
puited  making  payment  there.  The  duty  of  the  bankers,  as 
collecting  agents,  was,  therefore,  to  make  inquiry  for  his  resi- 
dence or  place  of  business  in  that  city,  and,  if  he  had  either,  to 
make  there  the  presentment  of  the  notes,  but  if  he  had  neither, 
to  use  reasonable  diligence  to  find  him  for  that  purpose.' 

"  The  court  then  refers  to  the  case  of  Allen  v.  Merchants' 
Bank,  22  Wend.  215,  in  the  Court  of  Errors  of  New  York,  as 
declaring  the  doctrine  that  a  bank  receiving  paper  for  collec- 
tion is  responsible  ^  for  all  subsequent  agents  employed  in  the 
collecth^n  of  the  paper,'  and  states  that,  though  that  decision 
has  been  followed  in  j^ew  York,  and  its  doctrine  has  been 
adopted  in  Ohio,  it  has  been  generally  rejected  in  the  courts 
of  other  States. 

'^  The  case  of  Dorchester  Bank  v.  ISTew  England  Bank,  1 
Cush.  177,  is  then  cited,  as  holding  that  if  a  bank  acts  in  good 
faith  in  selecting  a  suitable  sub-agent  at  the  place  where  the 
bill  is  payable,  it  is  not  liable  for  his  neglect;  and  the  opinion 
states  that  this  doctrine  has  been  followed  in  the  Supreme 
Courts  of  Connecticut,  Maryland,  Blinois,  Wisconsin  and 
Mississippi.  The  court,  however,  does  not  adopt  either  of 
these  views,  or  rest  the  decision  of  the  case  before  it  on  the 
latter  view\     For  it  proceeds  to  say: 

"  '  In  the  New  York  case,  in  the  Court  of  Errors,  it  was 
conceded  that  the  general  liability  of  the  collecting  bank  might 
be  varied  and  limited  by  express  agreement  of  the  parties,  or 
by  implication  arising  from  general  usage;  and,  in  some  of  the 
cases  in  other  States,  proof  of  such  general  usage  of  bankers 
in  the  employment  of  notaries  was  permitted,  and  a  release 
thereby  asserted  from  liability  of  the  bank  for  any  neglect 
by  them.' 

"  The  court  then  states  that  there  was  in  the  case  no  proof 
of  any  general  usage  of  bankers  at  Natchez,  as  to  the  employ- 
ment of  notaries  public  in  the  presentment  and  protest  of 
notes  left  with  them  for  collection.  But,  as  there  was  a  stat- 
ute of  Mississippi,  passed  in  1833  authorizing  notaries  to  pro- 
test promissory  notes  and  requiring  them  to  keep  a  record  of 
their  notarial  acts  in  such  cases,  and  making  the  record  admis- 
sible in  evidence  in  the  courts,  as  if  the  notary  were  a  ^\dtness, 
and,  as  the  courts  of  that  State  had  held.,  Tiernan  v.  Com- 


458  Collections  by  Banks,  [cii.  xxxviii. 

mercial  Bank,  7  How.  (Miss.)  G4S ;  Agricultural  Bank  v.  Com- 
mercial Bank,  7  Smedes  &  Marshall,  592;  Bowling  v.  Arthur, 
34  Mississippi,  41,  under  that  statute,  that  it  was  a  part  of  ths 
duty  of  the  notary,  when  protesting  paper,  to  give  all  notices 
of  dishonor  required  to  charge  the  parties  to  it,  and  that  a 
bank  receiving  commercial  paper  as  an  agent  for  collection, 
properly  discharged  its  duty,  in  case  of  non-payment,  by  plac- 
ing the  paper  in  the  hands  of  such  notary,  to  be  proceeded 
with  in  such  manner  as  to  charge  the  parties  to  it,  and  that 
the  bank  was  not  liable  in  such  case,  for  the  failure  of  the 
notary  to  perform  his  duty,  the  court  says,  that,  '  judged  by 
the  law  of  Mississippi,'  the  defendants  '  discharged  their  duty 
to  the  plaintiff  when  they  delivered  the  notes  received  by  them 
for  collection  to  the  notary  public,'  and  adds :  '  What  more 
could  they  have  done,  as  intelligent  and  honest  collecting- 
agents,  desirous  of  performing  all  that  was  required  of  them 
by  the  law,  ignorant  as  they  v\"ere  of  the  residence  or  place  of 
business  of  the  maker  of  the  notes,  and  having  unsuccessfully 
made  diligent  inquiry  for  them  ? ' 

"  It  further  says:  '  The  notary  was  not,  in  this  matter,  the 
agent  of  the  bankers.  He  was  a  public  officer  whose  duties 
were  prescribed  by  law;  and  when  the  notes  were  placed  in  his 
hands  in  order  that  such  steps  should  be  taken  by  him  as  would 
bind  the  indorsers  if  the  notes  were  not  paid,  he  became  tlie 
agent  of  the  holder  of  the  notes.  For  any  failure  on  his  part 
to  perform  his  whole  duty,  he  alone  was  liable.' 

"  On  these  grounds  the  court  held  that  the  defendants  were 
not  guilty  of  negligence  and  were  not  liable  for  the  negligence 
of  the  notary.  The  decision  was  not  placed  on  any  general 
rule  of  commercial  law,  but  rested  on  the  fact  that  the  notary 
was  a  public  officer  with  duties  prescribed  by  statute,  and  has 
no  application  to  the  case  at  bar.  iSTo  reference  was  made  to 
the  case  of  Hoover  v.  Wise,  nor  any  suggestion  that  the  views 
stated  in  the  opinion  in  that  case  were  doubted  or  dissented 
from.  There  is,  in  the  case  at  bar,  no  negligence  of  a  notary, 
or  of  a  public  officer,  or  of  any  person  whose  duties  or  func- 
tions are  prescribed  by  statute ;  and  the  question  of  the  liability 
of  the  defendant  is  to  be  determined  on  principles  not  involved 
in  the  actual  decision  in  Britton  v.  Xiccolls. 


til.  XXXVIII.]  Backing.  459 

'*  The  question  involves  a  rule  of  law  of  general  application. 
Whatever  he  the  proper  rnle,  it  is  one  of  commercial  law.  It 
concerns  trade  between  different  and  distant  places,  and,  in 
the  absence  of  Statutory  regulations  or  special  contract  or 
usage  having  the  force  of  law,  it  is  not  to  be  determined  ac- 
cording to  the  views  or  interests  of  any  particular  individuals, 
classes  or  localities,  but  according  to  those  principles  which 
will  best  promote  the  general  Avelfare  of  the  commercial  com- 
munity. Especially  is  this  so  when  the  question  is  presented 
to  this  tribunal,  whose  decisions  are  controlling  in  all  cases  in 
the  Federal  courts. 

"  The  agreement  of  the  defendant  in  this  case  was  to  collect 
the  drafts,  not  merely  to  transmit  them  to  the  Xewark  bank 
for  collection.  This  distinction  is  manifest;  and  the  question 
presented  is,  whether  the  Xewark  bank,  first  receiving  these 
drafts  for  collection,  is  responsible  for  the  loss  or  damage  re- 
sulting from  the  default  of  its  Xewark  agent.  There  is  no 
statute  or  usage  or  special  contract  in  this  case  to  qualify  or 
vary  the  obligation  resulting  from  the  deposit  of  the  drafts 
with  the  Xew  York  bank  for  collection.  On  its  receipt  of  the 
drafts,  under  these  circumstances,  an  implied  undertaking  by 
it  arose,  to  take  all  necessary  measures  to  make  the  demands 
of  acceptance  necessary  to  protect  the  rights  of  the  holder 
against  previous  parties  to  the  paper.  From  the  facts  found, 
it  is  to  be  inferred  that  the  Xew  York  bank  took  the  drafts 
from  the  plaintiff  as  a  customer  in  the  usual  course  of  busi- 
ness. There  are  eleven  drafts  in  the  case,  running  through 
a  period  of  over  three  months,  and  the  defendant  had  pre- 
viously received  from  the  plaintiff  two  other  drafts,  accept- 
ances of  which  it  had  procured  from  Conger  at  Xewark, 
through  the  Xewark  bank.  The  taking  by  a  bank,  from  a 
customer,  in  the  usual  course  of  business,  of  paper  for  collec- 
tion, is  sufficient  evidence  of  a  valuable  consideration  for  the 
service.  The  general  profits  of  the  receiving  bank  from  the 
business  between  the  parties,  and  the  accommodation  to  the 
customer,  must  all  be  considered  together  and  form  a  con- 
sideration, in  the  absence  of  any  controlling  facts  to  the  con- 
trary, so  that  the  collection  of  the  paper  cannot  be  regarded 
as  a  gratuitous  favor.  Smedes  v.  Bank  of  Utica,  20  Johns. 
372,  and  3  Cowen,  662;  McKinster  v.  Bank  of  Utica,  9  AVend. 


460  Collections  by  Ba.xks,  [cii.  xxxvin. 

46;  affirmed  in  Bank  of  Utica  v.  McKinster,  11  Wend.  473. 
The  contract,  then,  becomes  one  to  perform  certain  duties 
necessary  for  the  collection  of  the  paper  and  the  protection  of 
the  holder.  The  bank  is  not  merely  appointed  an  attorney 
authorized  to  select  other  agents  to  collect  the  pa]>er.  Its 
undertaking  is  to  do  the  thing,  and  not  merely  to  procure  it 
to  be  done.  In  such  case,  the  bank  is  held  to  agree  to  answer 
for  any  default  in  the  performance  of  its  contract;  and, 
whether  the  paper  is  to  be  collected  in  the  place  where  the 
bank  is  situated,  or  at  a  distance,  the  contract  is  to  use  the 
proper  means  to  collect  the  paper,  and  the  bank,  by  employ- 
ing sub-agents  to  perform  a  part  of  what  it  has  contracted  to 
do,  becomes  responsible  to  its  customer.  This  general  prin- 
ciple applies  to  all  who  contract  to  perform  a  service.  It  is 
illustrated  by  the  decision  of  the  Court  of  King's  Bench,  in 
ElKs  V.  Turner,  8  T.  R.  531,  where  the  o^^mers  of  a  vessel 
carried  goods  to  be  delivered  at  a  certain  place,  but  the  vessel 
passed  it  by  without  delivering  the  goods,  and  the  vessel  was 
sunk  and  the  goods  were  lost.  In  a  suit  against  the  owners 
for  the  value  of  the  goods,  based  on  the  contract  it  was  con- 
tended for  the  defendants  that  they  were  not  liable  for  the 
misconduct  of  the  master  of  the  vessel  in  carrying  the  goods 
beyond  the  place.  But  the  plaintiff  had  judgment,  Lord 
Kenyon  saying  that  the  defendants  were  answerable  on  their 
contract,  although  the  misconduct  was  that  of  their  servant, 
and  adding:  '  The  defendants  are  responsible  for  the  acts 
of  their  servant  in  those  things  that  respect  his  duty  under 
them,  though  they  are  not  answerable  for  his  misconduct  in 
those  things  that  do  not  respect  his  duty  to  them.' 

"  The  distinction  between  the  liability  of  one  who  contracts 
to  do  a  thing  and  that  of  one  who  merely  receives  a  delegation 
of  authority  to  act  for  another  is  a  fundamental  one,  appli- 
cable to  the  present  case.  If  the  agency  is  an  undertaking 
to  do  the  business,  the  original  principal  may  look  to  the  im- 
mediate contractor  with  himself,  and  is  not  obliged  to  look  to 
inferior  or  distant  under-contractors  or  sub-agents,  when  de- 
faults occur  injurious  to  his  interest. 

"  Whether  a  draft  is  payable  in  the  place  where  the  bank 
receiving  it  for  collection  is  situated,  or  in  another  place,  the 
holder  is  aware  that  the  collection  must  be  made  by  a  com- 


cii.  XXXVIII.]  Baxkijv'g.  461 

petent  ag-ont.  In  either  case,  there  is  an  implied  contract 
of  the  bank  that  the  proper  measures  shall  be  used  to  collect 
the  draft,  and  a  right,  on  the  part  of  its  owner,  to  presume 
that  proper  agents  will  be  employed,  he  having  no  knowledge 
of  the  agents.  There  is,  therefore,  no  reason  for  liability  or 
exemption  from  liability  in  the  one  case  which  does  not  apply 
to  the  other.  And,  while  the  rule  of  law  is  thus  general,  the 
liability  of  the  bank  may  be  varied  by  consent,  or  the  bank 
may  refuse  to  undertake  the  collection.  It  may  agree  to  re- 
ceive the  paper  only  for  transmission  to  its  correspondent,  and 
thus  make  a  different  contract,  and  become  responsible  only 
for  good  faith  and  due  discretion  in  the  choice  of  an  agent. 
If  this  is  not  done,  or  there  is  no  implied  understanding  to 
that  effect,  the  same  responsibility  is  assumed  in  the  under- 
taking to  collect  foreign  paper  and  in  that  to  collect  paper 
payable  at  home.  On  any  other  rule,  no  principal  contractor 
would  be  liable  for  the  default  of  his  o^vn  agent,  where  from 
the  nature  of  the  business,  it  was  evident  he  must  employ 
sub-agents.  The  distinction  recurs  between  the  rule  of  merely 
personal  representative  agency  and  the  responsibility  imposed 
by  the  law  of  commercial  contracts.  This  solves  the  difficulty 
and  reconciles  the  apparent  conflict  of  decision  in  many  cases. 
The  nature  of  the  contract  is  the  test.  If  the  contract  be 
only  for  the  immediate  services  of  the  agent,  and  for  his 
faithful  conduct  as  representing  his  principal,  the  responsi- 
bility ceases  with  the  limits  of  the  personal  services  under- 
taken. But  where  the  contract  looks  mainly  to  the  thing  to  be 
done  and  the  undertaking  is  for  the  due  use  of  all  proper  means 
to  performance,  the  responsibility  extends  to  all  necessary  and 
proper  means  to  accomplish  the  object,  by  whomsoever  used. 

'^  We  regard  as  the  proper  rule  of  law  applicable  to  this 
case,  that  declared  in  Van  Wart  v.  Woolley,  3  B.  &  C.  439, 
where  the  defendants,  at  Birmingham,  received  from  the  plain- 
tiff a  bill  on  London,  to  procure  its  acceptance.  They  for- 
warded it  to  their  London  banker  and  acceptance  was  refused, 
but  he  did  not  protest  it  for  non-acceptance  or  give  notice  of 
the  refusal  to  accept.      Chief  Justice  Abbott  said: 

"  '  Upon  this  state  of  facts  it  is  evident  that  the  defendants 
(who  cannot  be  distinguished  from,  but  are  answerable  for, 
their  London  correspondent)  have  been  guilty  of  a  neglect  of 


462  Collections  by  Banks.  [cii.  xxxviii. 

the  duty  Avhieli  they  owed  to  the  plaintiff,  their  employer,  and 
from  whom  they  received  a  peciniiary  reward  for  their  ser- 
vices. The  plaintiff  is,  therefore,  entitled  to  maintain  his 
action  against  them,  to  the  extent  of  any  damage  he  may  have 
sustained  hy  their  neglect.' 

"  In  that  case  there  was  a  special  peenniary  reward  for  the 
serrice.  But,  upon  the  principles  we  have  stated,  we  are  of 
opinion  that,  by  the  receipt  by  the  defendant  of  the  drafts  in 
the  present  case  for  collection,  it  became,  upon  ge-neral  prin- 
ciples of  law,  and  independently  of  any  evidence  of  usage,  or 
of  any  express  agreement  to  that  effect,  liable  for  a  neglect 
of  duty  occurring  in  that  collection  from  the  default  of  its 
correspondent  in  Newark. 

"  What  was  the  duty  of  the  defendant,  and  what  neglect  of 
duty  was  there  ?  An  agent  receiving  for  collection,  before 
maturity,  a  draft  payable  on  a  particular  day  after  date,  is 
held  to  due  diligence  in  making  presentment  for  acceptance, 
and,  if  chargeable  with  negligence  therein,  is  liable  to  the 
owner  for  all  damages  he  has  sustained  by  such  negligence. 
Allen  V.  Suydam,  20  Wend.  321;  Walker  v.  Bank  of  the  State 
of  ISTew  York,  5  Selden,  582.  The  drawer  or  indorser  of  such 
a  draft  is,  indeed,  not  discharged  by  the  neglect  of  the  holder 
to  present  it  for  acceptance  before  it  becomes  due.  Bank  of 
Washington  v.  Triplett,  1  Pet.  25,  35;  Townsley  v.  Sumrall, 
2  Pet.  170,  178.  But,  if  the  draft  is  presented  for  acceptance 
and  dishonored  before  it  becomes  due,  notice  of  such  dishonor 
must  be  given  to  the  drawer  or  indorser,  or  he  wall  be  dis- 
charged. 3  Kent's  Comm.  82;  Bank  of  AVashington  v. 
Triplett,  1  Pet.  25,  35;  Allen  v.  Suydam,  20  Wend.  321; 
Walker  v.  Bank  of  the  State  of  Xew  York,  5  Selden,  582; 
Goodall  V.  Dolley,  1  T.  K.  712;  Bayley  on  Bills,  2d  Am.  ed. 
213.  Moreover,  the  o\\Tier  of  a  draft  payable  on  a  day  cer- 
tain, though  not  bound  to  present  it  for  acceptance  in  order 
to  hold  the  drawer  and  indorser,  has  an  interest  in  having  it 
presented  for  acceptance  without  delay,  for  it  is  only  by  ac- 
cepting it  that  the  drawee  becomes  bound  to  pay  it,  and,  on 
the  dishonor  of  the  draft  by  non-acceptance,  and  due  protest 
and  notice,  the  owner  has  a  right  of  action  at  once  against 
the  drawer  and  indorser,  without  waiting  for  the  maturity  of 
the  draft;  and  his  agent  to  collect  the  draft  is  bound  to  do 


cii.  XXXVIII.]  Baxkixg.  463 

what  a  prudent  principal  would  do.  3  Kent's  Comm.  94; 
Robinson  v.  Ames,  20  Johns.,  146;  Lenox  v.  Cook,  8  Mass. 
460;  Ballingalls  v.  Gloster,  3  East,  481;  Whitehead  v.  Walker, 
9  M.  it  W.  506;  Walker  v.  Bank  of  the  State  of  Xew  York, 
5  Selden,  582. 

"  In  view  of  these  considerations,  it  is  well  settled  that  there 
is  a  distinction  between  the  owner  of  a  draft  and  his  agent,  in 
that  though  the  owner  is  not  bound  to  present  a  draft  payable 
at  a  dav  certain,  for  acceptance,  before  that  day,  the  agent 
employed  to  collect  the  draft  must  act  with  due  diligence  to 
have  the  draft  accepted  as  well  as  paid,  and  has  not  the  dis- 
cretion and  latitude  of  time  given  to  the  owner,  and,  for  any 
unreasonable  delay,  is  responsible  for  all  damages  sustained 
by  the  owner.  3  Kent's  Comm.  82;  Chitty  on  Bills,  13th 
Am.  ed.  272,  273. 

"  The  defendant  being  thus  under  an  obligation  to  present 
the  drafts  for  acceptance,  and  having,  in  fact,  presented  them, 
through  the  l^ewark  bank  to  Conger,  the  secretary  of  the 
company,  was  found  not  to  take  the  acceptances  it  did,  but  to 
treat  the  drafts  as  dishonored.  The  plaintiff  was,  at  least, 
entitled  to  an  acceptance  in  the  terms  of  the  address  on  the 
drafts.  Walker  v.  Bank  of  the  State  of  Xew  York,  5  Selden, 
582,  The  defendant  had  notice  from  the  description  of  the 
drafts  by  the  words  '  Xewark  Tea  Tray  Co.,'  in  the  letters 
sending  them  for  collection,  that  the  plaintiff  regarded  the 
drafts  as  drawn  on  the  company;  and  the  defendant  recognized 
its  knowledge  of  the  fact  that  the  drafts  were  drawn  on  the 
company,  by  describing  them  by  the  words  '  Xewark  Tea  Tray 
Co.,'  in  its  letters  to  the  Xewark  bank,  in  every  instance  but 
two.  If,  on  the  face  of  the  drafts,  the  address  was  ambiguous, 
it  was  not  ior  the  defendant  to  determine  the  question,  as 
against  the  plaintiff,  by  taking  an  acceptance  which  purported 
to  be  the  acceptance  of  Conger  individually,  especially  in  view 
of  the  information  it  had  by  the  words  '  Xewark  Tea  Tray 
Co.,'  in  the  letters  sending  the  drafts  to  it  for  collection. 

"  It  appears  that  the  drafts  were  discounted  by  the  plaintiff 
as  drafts  on  the  company,  and,  if  it  could  have  had  an  accept- 
ance in  the  terms  of  the  address,  it  would,  in  a  suit  against 
the  company,  have  been  in  a  condition  to  show  who  was  the 
real  acceptor.     But,  ^\'ith  the  information  given  to  the  Xewark 


464  Collections  bv  Banks.  [cil  xxxviii. 

bank  by  Conger,  while  that  bank  bad  in  its  hands  for  accept- 
ance drafts  dra\Yn  in  the  same  form  as  those  here  in  question, 
that  he  would  not  accept  such  drafts  in  his  official  capacity  as 
secretary,  the  ISTewark  bank  chose  to  take  acceptances  individ- 
ual in  form.  This  was  negligence,  for  which  the  defendant 
is  liable  to  the  plaintiff  in  damages,  no  notice  of  dishonor 
having  Jbeen  given.  The  defendant  was  bound  to  give  such 
notice  to  the  plaintiff.  AValker  v.  Bank  of  the  State  of  Xew 
York,  5  Selden,  582. 

"  The  question  as  to  whether  the  company  would  have  been 
liable  on  the  drafts,  if  they  had  been  accepted  in  the  terms 
of  the  address,  is  not  one  on  tlte  determination  of  which  this 
suit  depends ;  nor  do  we  find  it  necessary  to  discuss  the  question 
as  to  whether,  on  the  face  of  tliQ  drafts,  the  company  or 
Conger  individually  is  the  drawee.  The  very  existence  of  the 
ambiguity  in  the  address,  and  of  the  question  as  to  whether 
the  company  would  be  liable  on  an  acceptance  in  the  terms 
of  the  address,  is  a  cogent  reason  why  the  defendant  should 
not  be  allowed,  without  further  communication  with  the 
holder,  to  do  acts  which  may  vary  the  rights  of  the  holder, 
without  responding  in  damages  therefor.  The  risk  is  on  the 
defendant  and  not  on  the  plaintiff. 

"  It  is,  therefore,  plain  that  the  judgment  must  be  reversed. 
But  judgment  cannot  be  now  rendered  for  the  plaintiff  for 
damages.  There  must  be  a  new  trial.  xVltliough  there  is  a 
special  finding  of  facts,  it  does  not  cover  the  issue  as  to  dam- 
ages. Xo  damages  are  found.  The  action  is  one  for  negli- 
gence, sounding  in  damages.  Although  the  complaint  alleges 
that  the  drawers  and  the  indorser  are  discharged  for  want  of 
notice  of  non-acceptance,  and  though  it  is  found  that  the 
drawers  were  in  good  credit  when  the  drafts  were  discounted, 
and  that  the  drawers  and  indorser  had  become  insolvent  by 
the  13th  and  19th  of  October,  1875,  there  is  nothing  in  the  find- 
ing of  facts  on  Avhich  to  base  a  judgment  for  any  specific 
amount  of  damages.  On  the  new  trial,  that  question  will  be 
open,  and  we  do  not  intend  to  intimate  any  opinion  on  the 
subject." 

The  States  that  sustain  the  rule  that  the  initial  bank  is  liable 
to  the  owner  of  the  paper  are  given  in  the  order  hereinafter 


cii.  XXXVIII.]  Baxkixg.  465 

set  forth,  with  citations  of  cases  rendered  by  the  courts  of  the 
various  States. 

Xew  York,^^  iSTew  Jersey,  ^  Ohio,*^  Georgia,^  Michigan,^'' 
Minnesota,**^  Montana.*^ 

Xorth  Dakota.  The  statute  fixes  the  liability  in  this  State, 
but  in  the  absence  of  such  a  statute,  the  court  evidently  sus- 
tains the  rule.^^ 

Colorado,*^  Texas,^''  Indiana.'^ 

The  general  rule  that  the  initial  bank  is  liable  for  all  de- 
faults of  its  agents  in  many  of  the  States  is  modified  and  is 
stated  as  follows:  the  initial  hank,  if  it  selects  as  its  agent  one 
who  is  competent  and  worthy  of  trust,  and  transmits  the  paper  to 
him,  its  duty  is  done,  and  the  owner  of  the  collection  must  look 
to  the  sub-agent  for  any  default  of  which  he  is  guilty. 

The  States  sustaining  this  rule  are: 

California.  The  rule  in  California  is  not  stated  with  the 
same  precision  and  accuracy  of  language,  but  in  effect  it  is  as 
follows:  that  the  initial  bank  is  bound  to  exercise  reasonable 
care  and  diligence  in  the  employment  of  its  sub-agents ;  and, 
if  in  the  employment  and  in  making  the  collection  the  course 
usually  taken  by  banks  is  followed,  the  initial  bank  is  not 
negligent.  The  holding  of  the  court  substantially  supports  the 
rule  stated.^" 


41  Xational    Revere    Bank    r.    Na-  46  Streissgiith  r.  National  German- 
tional  Bank  of  Republic,  172  X.  Y.  American  Bank,  43  Minn.  50. 

102 ;  Kirkhani  v.  Bank  of  America,  47  Power  r.  First  Nat.  Bank  of  Ft. 

1G5  X.  Y.  132,  58  X.  E.  753;  Castle  Benton,  6  Mont.  251. 

r.  Corn  Exchange  Bank,   148  X.  Y.  48  Commercial  Bank  r.  Red  River 

122,    42    X.    E.    518;    St.    Xicliolas  Yallev   Xat.   Bank,   8  N.   Dak.   382, 

Bank  r.  State  Xat.  Bank,  128  X.  Y.  79  Xl  W.  759. 

20,  27  X.  E.  849 :  Xaser  r.  First  Xat.  49  German  Xat.  Bank  of  Denver  r. 

Bank,    110   X.   Y.   492;    Commercial  Burns.   12  Colo.  539. 

Bank  of  Penn.  r.  Union  Bank  of  X.  so  Schumacher    r.   Trent     18    Tex. 

^  Y..    11    X.    Y.    203;    Allen    v.    Mer-  Civ.  App.   17.  44  S.  W.  460;    State 

chants'  Bank,  22  Wend.  (X.  Y.)  215.  Xat.  Bank  of  Ft.  Worth  r.  Thomas 

42  Titus  r.  Mechanics'  Xat.  Bank,  Mf?.  Co..  17  Tex.  Civ.  App.  214    42 
35  X.  J.  Law,  588.  S.  W.  710. 

43  Reeves  v.  State  Bank,  8  Ohio  St.  51  Tvson  r.  State  Bank  of  Indiana, 
466.  6  Blac'kf .   ( Ind. )  225  ;  American  Ex- 

44  Bailie  r.  Augusta  Savings  Bank,  press  Co.  v.  Haire,  21  Ind.  4. 

95  Ga.  277,  21  S.  E.  717.  52  Davis.     Respondent,     v.     First 

45  Simpson    r.    Waldbv,    63   Mich.  Xat.  Bank  of  Fresno.  118  Cal.  600. 
439,  30  X.  W.  199.           ' 

30 


466  Collections  by  Banks.  [ch.  xxxviii. 

Connecticut,^^  Illinois,^'*  lowa,^  Kansas,^^  Maryland,^"  Massa- 
chusetts,^* Mississippi,^^  Missouri,^*^  I^ebraska,^^  Pennsylvania,*^ 
Tennessee,^  Wisconsin,*^  Xortli  Carolina,'^  Kentucky.®^ 

§  286.  Review  of  decisions. 

In  a  re^'iew  of  the  decisions,  we  find  that  the  rule  ■which  is 
established  in  the  State  ofMassachusetts  is,  that  when  an  initial 
bank  transmits  a  collection  with  proper  instructions  to  a  rep- 
utable and  proper  agent  where  the  collection  is  to  be  made, 
it  has  performed  its  duty,  and  is  not  responsible  for  the  laches, 
defaults  or  negligence  of  the  correspondent.  This  rule,  as  we 
have  seen,  is  (with  some  unimportant  variations  in  language) 
sustained  and  held  to  be  the  law  in  the  States  of  California, 
'Connecticut,  Illinois,  Iowa,  Kansas,  Maryland,  Mississippi, 
Missouri,  Nebraska,  Pennsylvania,  Tennessee,  Wisconsin,  Ken- 
tucky and  Xorth  Carolina. 

The  general  rule  which  may  be  said  to  be  the  Xew  York 
rule  is,  as  previously  stated,  that  the  initial  bank  is  responsible 
for  the  negligence,  laches  and  defaults  of  its  correspondents. 

This  rule  is  confirmed  as  the  law  by  the  Supreme  Court 
of  the  United  States  aiid  by  the  following  States:  Xew  York, 
New  Jersey,  Ohio,  Georgia,  Michigan,  Minnesota,  Montana, 
South  Dakota,  Colorado,  Texas,  Indiana  and  the  Federal 
Courts  discussing  the  question. 

53  Bank  r.  Scovell,  12  Conn.  303 ;  60  Daly  r.  Butchers'  Bank,  56  Mo. 
Lawrence    v.     Stonington     Bank,     6       04. 

Conn.   521.  61  Omaha  First  Xat.  Bank  r.  Mo- 

54  Fay  r.  Strain,  32  111.  295;  line  First  Xat.  Bank.  55  Xeb.  303; 
Waterloo  Mining  Co.  r.  Kuenster,  First  Xat.  Bank  of  Pawnee  City  r. 
158  111.  259,  41  X.  E.  906;  Drovers'  Sprague,  34  Xeb.  318,  51  X.  *  W. 
Xat.  Bank   v.  Anglo-American  P.  &  846. 

P.    Co.,    117    111.    100:    Anderson   v.  62  Hazlett     r.     Commercial     X'at.' 

Alton  X^at.  Bank.  59  111.  App.  587;  Bank,  132  Penn.  St.  118;  Wingate  i: 

Carlin^^lle  Xat.  Bank  v.  Wilson,  78  Mechanics'  Bank.  10  Penn.  St.  104; 

111.  App.  339,  58  X.  E.  250.  Bradstreet  c.  Everson,  72  Penn.  St. 

sr.  Guelich  c.  Xational  State  Bank,  124.   13  Am.  Rep.  665. 
50  Ta.  434,  9  X.  W.  328.  63  Second  Xat.  Bank  r.  Cummings, 

56  Linsbourg  Bank  V.  Ober,  31  89  Tenn.  609,  35  Am.  Pvep.  091 ; 
Kan.  599,  3  Pac.  324.  Givan  r.  Bank  of  Alexandria   (Tenn. 

57  Citizens'  Bank  r.  Howell,  8  Md.  Ch.   1898),  ,52  S.  W.  923. 

530.  6-1  Stacy  i:  Dane  County  Bank,  12 

58  Warren    Bank    r.    SuflTock,     10       Wis.  629." 

Cush.    (Mass.)    582;   Fabins  r.  Mer-  65  p]nnters  &  Farmers'  Xat.  Bank 

cantile  Bank,  23  Pick.    (Mass.)   330.       of  Baltimore  r.  First  Xat.  Bank  of 

50  Louisville   Tliird   Xat.    Bank   r.       Wilmington.  75  X.  C.  534. 
Vicksburg  Bank,  61  Miss.  112.  60  Farmers'   Bank  &  Trust  Co.   v. 

X'^ewland,  97  Ky.  464. 


en.  XXXVIII.]  Banking.  467 

The  Supreme  Court  of  Xew  York  presents  its  reasons  in 
support  of  the  rule  upon  the  ground  "  that  a  contract  to  do  the 
business  covers  all  the  means  employed." 

The  Supreme  Court  of  the  United  States  embodies  its  posi- 
tion in  support  of  the  principle  and  the  rule  in  the  following 
language.  It  savs,  "^  that  the  distinction  between  the  liabilities 
of  one  icho  contracts  to  do  a  thing  and  that  of  one  who  merely 
receives  a  delegation  of  authority  to  act  for  another,  is  a  funda- 
mental one.  *  *  *  /^  i]iQ  agency  is  an  undertaking  to  do 
the  business,  the  original  principal  may  look  to  the  immediate 
contractor  icith  himself,  and  is  not  obliged  to  look  to  inferior 
or  distant  under-contractors  or  sub-agents  when  defaults  occur 
injurious  to  his  interest.  *  *  *  The  nature  of  the  contract  is 
the  test.'' 

■With  this  reasoning  in  view,  a  bank  that  receives  a  note 
for  collection  without  entering  into  a  special  contract  par- 
ticularly, specifying  that  it  will  not  be  held  responsible  for 
the  laches  and  defaults  of  its  agents  who  may  subsequently  be 
engaged  to  act,  is  held  responsible  to  the  owner  of  the  collec- 
tion. Therefore,  a  bank  desiring  to  limit  its  liability,  located 
in  a  State  where  the  courts  uphold  this  rule,  should,  before 
undertaking  to  collect  for  the  o-\^nier  of  the  collection  (if  it 
desires  to  avoid  liability  as  an  agent),  enter  into  a  contract 
with  the  owner  of  the  paper  limiting  its  liability  to  place  for 
collection,  the  paper  into  the  hands  of  reputable  and  reliable 
sub-agents. 

A  special  agreement  entered  into,  icill  control  the  rights  and 
liabilities  of  the  parties.^^ 

The  Supreme  Court  of  the  State  of  Michigan,  in  the  case 
of  Simpson  v.  "Waldby,  63  Mich.,  p.  451,  says: 

"  If  I  leave  an  indorsed  note  against  persons  in  my  own 
town  for  collection,  and  consequent  demand  and  protest,  I 
know  that  some  agent  or  employee  of  the  bank  will  do  the  work 
or  some  part  of  it,  and  I  do  not  inquire  who  will  do  it.  I  con- 
tract, however,  with  the  bank  that  suitable  agents  will  be  em- 
ployed, and  hold  it  responsible  for  their  acts.  *  *  *  /^ 
they  ivish  to  avoid  such  responsibility,  it  is  very  easy  for  them 


67Exchan£re  Xat.  Bank  of  Pittsburtih  v.  Third  Xat.  Bank  of  New  York, 
112  U.  S.  27G. 


468  COLLECTIOXS  BY  BaNKS.  [cH.  XXXVIII. 

to  accept  such  business  only  upon  a  special  agreement  as  to  their 
duties  and  liabUities.  Failing  to  do  this,  I  think  they  must,  in 
taking  such  bills  and  drafts,  be  responsible  as  other  business 
men  are,  for  the  misconduct  of  their  selected  agents  at  home 
or  abroad.'' 

§  287.  When  correspondent  bank  liable  to  initial  bank. 

Conceding  the  rule  holding  the  collecting  or  initial  bank 
liable  to  the  holder  of  the  collection  for  defaults  of  its  agents, 
to  be  the  law,  the  correspondent  bank,  must  be  held  liable 
to  the  initial  bank  for  its  default  or  negligence. 

The  authorities  supporting  the  general  rule  of  the  initial 
bank's  liability  apply  here."^ 

The  correspondent  bank  is  liable  to  the  initial  bank  for  the 
negligence  of  the  agents  employed  by  it,  and  it  is  held  in  the 
case  of  N^ational  Pahquioque  Bank  v.  First  ISTational  Bank  of 
Bethel,  36  Conn.  325,  that  where  the  cashier  of  the  defendant 
bank  received  notes,  drafts  and  checks  for  collection  from  the 
initial  bank,  that  he  had  ostensibly  power  and  that  it  was  his 
duty  to  collect  the  same,  or  to  protest  and  return  them.  Fail- 
ing to  do  either,  he  made  the  bank  liable  to  the  initial  bank  for 
their  amount.*^ 

§  288.  Where  paper  total  loss. 

Where  a  draft  or  note  is  indorsed  to  a  bank  for  collection 
by  blank  or  general  indorsement,  and  it  undertakes  to  collect 
the  same  and  employs  an  agent  if  the  instrument  is  lost  through 
negligence,  by  tlie  agent  of  the  initial  bank,  the  owner  may 
look  to  the  initial  bank;  and  the  initial  bank  may  look  to  its 
correspondent. 

The  measure  of  recovery,  when  there  is  a  total  loss,  is  the 
face  value  of  the  paper. 

Where  it  appears  that  a  note  entrusted  to  an  express  com- 
pany was  lost  through  negligence,  the  injury  is  the  same  as 
if  it  had  been  converted.''^^ 

68  Exchange  Nat.   Bank  of  Pitts-  60  ]Merchaiits'   Bank  of  Baltimore 

biirwli,   r.  Third  Nat.  Bank  of  Now  r.   Bank  of  Commerce  use  of  Hofl'- 

York.    112   U.    S.    276;    Simpson   r.  man,  24  Md.  12.  .52. 

Waldbv,    03    Misc.    439.    30    N.    W.  70  American   Express   Co.   r.   Par- 

IfTO:  A>Tault  r.  Pacific  Bank.  47  N".  sons.    44    111.    312':    Om.^ha     (Neb.) 

Y.     ru6:     Streissgulh    r.     National  Xat.    Bank    r.    Kiper     (Neb.),    82 

German-Americnn    Bank.    43    IMinn.  N.   W.    102. 
.'iO:  Titns  r.  Mpolianics'  Nat    Bank, 
:r.  X.  J.  I,a\v,  5SS. 


en.  xxxvni.J  Baxking.  469 

§  289.  Eight  of  creditors  to  proceeds  of  collection. 

The  rights  of  a  creditor  of  the  OTnier  of  the  collection  to 
garnishee  the  proceeds,  while  yet  remaining  in  the  initial  or 
collecting  bank,  depends  upon  the  law  or  the  statute  of  the 
State. 

The  general  rule  is,  that  when  the  collection  is  in  the  hands 
of  the  initial  bank  as  the  propcrt;^'  of  the  o^vner  of  the  col- 
lection, and  such  facts  can  be  established,  it  is  subject  to  gar- 
nishment or  attachment. 

In  the  State  of  Georgia,  the  rule  is  laid  do^\ai  as  follows: 
"  where  the  payee  of  a  bill  of  exchange  by  indorsing  it  *  for  de- 
posit to  the  credit  of  '  himself,  he  retains  ownership  not  only 
of  the  bill  but  of  its  proceeds  until  they  are  so  disposed." 

The  collection  of  proceeds  which  under  the  rule  as  stated 
may  be  liable  to  garnishment  or  attachment;  biit,  if  the  initial 
bank  has  allowed  the  o^^^:ler  to  draw  against  the  same  "\vliile 
the  collection  is  in  the  hands  of  a  corespondent  bank  for  col- 
lection, neither  the  bank  itself  or  the  proceeds  would  be  liable 
to  garnishment  in  the  hands  of  the  corespondent,  for  the  reason 
that  the  initial  bank  has  acquired  a  title  thereto  by  allowing 
the  indorser  to  draw  against  the  same. 

§  290.  Insolvency  of  initial  or  corresponding  bank  affecting  pro- 
ceeds of  collection. 

If  the  initial  bank  becomes  insolvent  while  holding  the  pro- 
ceeds of  a  collection,  the  owner  of  the  collection  is  either  a 
general  or  special  depositor.  If  the  funds  have  been  passed 
to  his  credit  after  collection  by  his  instructions,  he  becomes  a 
general  creditor  of  the  bank. 

If  the  proceeds  of  the  collection  are  not  passed  to  his  credit 
under  instruction,  and  the  bank  becomes  insolvent  wliile  hold- 
ing such  funds,  they  become  a  special  deposit  or  trust  funds 
and  the  bank  or  its  assignee  or  receiver  must  pav  the  claim 
in  full. 

If  the  collecting  bank  becomes  insolvent  while  holding  the 
proceeds  of  the  collection,  the  owner  of  the  collection  in  the 
States  which  hold  the  initial  bank  liable  to  the  owner,  is  not 
affected  by  the  insolvency  of  the  corresponding  bank.  He  may 
look  to  the  initial  bank. 

The  rule  as  laid  down  by  the  Supreme  Court  of  the  State 
of  Kentuckv,  is  as  follows: 


470  Collections  by  Banks.  [cti.  xxxviii. 

''  When  a  bank  receives  a  draft  or  note  for  collection  on  ac- 
count or  which  is  the  same  collection  and  credit,  it  does  not  owe 
the  amount  until  collected;  and  though  credit  be  given  there- 
for prior  to  collection,  the  bank  is  not  precluded  from  can- 
celling such  credit  which  is  regarded  as  only  provisional,  if 
the  paper  is  dishonored.  On  the  other  hand,  the  owner  of  the 
paper  is  at  liberty  to  treat  the  bank  as  an  agent  until  the  pro- 
ceeds are  collected  by  the  bank  in  money,  and  an  entry  of 
credit  by  the  bank  before  it  has  actually  received  the  money, 
will  not  bind  the  owner.  Therefore,  when  the  bank  has  entered 
the  credit  and  then  gone  into  the  hands  of  a  receiver  before  it 
has  actually  received  the  money  from  another  bank  to  which  it 
transmitted  the  paper  for  collection,  the  real  owner  may  re- 
cover from  the  latter  bank,  the  proceeds  still  in  its  hands. 
]^either  the  receiver  nor  the  creditors  of  the  bank  which  trans- 
mitted the  paper  for  collection,  have  any  right  to  the  money. 
A  mere  usage  between  banks,  whereby  the  collecting  bank 
credits  the  transmitting  bank  with  the  amount  collected  instead 
of  remitting,  is  not  sufficient  to  deprive  the  real  owner  of  his 
rights." 

§  291.  Collection  completed  when. 

A  collection  is  not  completed  by  the  bank  until  the  owmer  is 
paid  in  money. 

The  payment  of  negotiable  paper  can  only  be  paid  ^^'itll 
money. 

Where  an  agent  is  employed  to  make  a  collection,  he  cannot 
■accept  anything  but  money  in  payment.  His  principal,  how- 
ever, may  authorize  him  to  accept  something  else. 

Where  a  bank  holding  notes  for  collection,  without  authority 
from  the  principal,  accepted  other  notes  of  the  maker,  payable 
to  the  bank  for  the  principal  sum,  and  credited  the  bank's  ac- 
count of  the  payee  theremth,  surrendering  the  notes,  and  no 
credit  w^as  given  the  account  of  the  payer  of  the  notes  as  for 
borrowed  money,  and  no  cash  passed,  and  the  bankers  ab- 
sconded, and  the  owner  of  the  surrendered  notes  brought  suit 
against  the  maker,  it  is  held  that  no  payment  had  been  made 
and  the  owner  could  recover.^^ 

AVhere  a  correspondent  bank  informs  the  initial  bank,  that 

71  Scott  V.  Gilkey,  153  111.  1G8,  39  X.  E.  265. 


en.  XXXVIII.]  Baxkixg.  471 

a  draft  sent  to  it  for  collection  has  been  paid  by  the  drawee 
giving  his  check  therefor,  and  the  initial  bank  thereupon  gives 
credit  to  the  owner  of  the  draft,  it  cannot  afterward,  upon  fail- 
ure of  the  correspondent  bank  to  collect  the  check,  cancel  the 
credit.'^ 

The  Supreme  Court  of  the  State  of  Illinois,  in  the  case  of 
Eidgely  Bank  v.  Patton  and  Hamilton,  109  111.  479,  in  discuss- 
ing the  question  as  to  the  right  of  a  banker  to  apply  money  on 
deposit  to  the  payment  of  a  note  payable  at  the  bank,  "without 
the  order  of  the  depositor,  says,  ''  clearly  a  banker  has  no  right 
to  apply  money  on  deposit  to  the  payment  of  a  note  of  the 
depositor  payable  at  the  bank,  ^^-ithout  the  order  of  the 
depositor."  "^ 

Payment  to  the  initial  bank's  correspondent,  in  .the  States 
holding  the  initial  bank  liable  directly  to  the  holder,  is  payment 
to  the  initial  bank  to  which  the  holder  may  look."'^ 

A  case  reported  in  1842  by  the  Supreme  Court  of  the  State 
of  New  York,  holds  that  where  a  bank  at  Troy  received  a  note 
for  collection,  payable  at  Buffalo,  which  was  sent  to  a  bank  of 
Orleans  for  collection  whence  it  was  transmitted  to  a  bank  in 
Buffalo,  the  cashier  of  the  bank  of  Orleans,  acting  under  the 
mistaken  supposition  that  the  money  due  on  the  note  had  been 
collected  and  deposited  to  the  credit  of  his  bank,  paid  the 
amount  to  the  bank  at  Troy,  which  bank  paid  it  over  to  the 
holder;  the  bank  of  Orleans  having  parted  with  the  money 
under  a  plain  mistake  of  fact,  held,  that  it  might  maintain  an 
action  for  it  directly  against  the  holder. 

>?  292.  Bank's  liability  for  negligence  in  failing  to  make  col- 
lections. 

The  general  rule  is,  that  an  action  against  a  bank  for  negli- 
gence in  failing  to  collect  an  instrument  sent  to  it  for  collection, 
the  burden  of  proof  rests  on  the  plaintiff  to  show  that  the 
drawee  was  solvent,  and  the  draft  collectible;  and  that  the  loss 
was  due  to  negligence.  "Where  a  bank  holds  a  draft  according 
to  its  custom  or  the  customary  method  of  business  for  ten  days 
without  notice  to  the  drawer,  and  during  which  time  the  drawee 

72  Kirkham   r.   Bank   of  America,  "4  Reeves.  Stephens  &  Co.  v.  Stale 
165  X.  Y.  132,  58  X.  E.  753.                     Bank  of  Ohio,  8  Onio  St.  406. 

73  41  111.  2G7. 


472  Collections  by  Banks.  [cii.  xxxviii, 

makes  an  assignment,  held,  that  it  does  not  in  itself,  constitute 
snch  negligence  as  will  make  the  bank  liable  to  the  drawer. ^^ 

Such .  a  custom  would  not  excuse  the  bank  from  liability, 
where  it  became  necessary  to  bind  an  indorser  or  other  party  to 
the  instrument,  notice  in  such  case  is  essential  and  must  be 
given  in  a  fixed  time. 

JSTegligence  must  result  in  loss  to  the  owner  of  the  paper.'° 

"o  Sahlien  et  al.  t\  Bank  of  Lonoke,  76  Finch  et  al.  v.  Karste  et  al.  56 

16  S.  W.  373.  N.  W.  123. 


CHAPTER  XXXIX. 


SAVINGS  BANKS. 

§  293.  General  discussion  —  Nature. 

Savings  banks  were  originally  mutual  in  principle,  eleemosy- 
nary in  character.  They  were  organized  for  the  purpose  of 
stimulating  and  fixing  the  habit  of  saving  with  the  poor.  They 
acted  as  fiduciary  agents,  only  for  those  whose  limited  means  or 
incomiDctency  in  some  direction  forbade  the  making  of  their 
own  investments. 

Only  clerical  services  were  compensated  by  salaries.  The 
lc!gislative  functions  and  the  power  of  making  investments  were 
lodged  in  a  board  of  trustees.  The  members  often  lacking 
financial  knowledge  and  experience  serving  without  pay,  the 
services  rendered  being  as  usual  w^here  the  public  is  the  recipi- 
ent, careless  and  perfunctory  with  the  result,  savings  institu- 
tions came  frequently  to  grief,  involving  considerable  partial 
losses  to  depositors. 

In  the  course  of  time  it  was  found  that  the  scope  of  savings 
banks  must  be  enlarged  and  that  they  must  cease  to  be  local, 
that  deposits  from  a  distance  must  be  received,  that  investments 
must  be  sought  away  from  home,  and  that  provisions  must  be 
made  for  the  receipt  and  caring  for  money  of  estates  and  of 
trust  funds  in  considerable  amounts.  Then  it  was  that  the 
weakness  of  the  old  machinery  became  apparent  and  it  dawned 
on  the  public  that  savings  banks  must  be  under  the  control  and 
active  supervision  of  those  experienced  in  matters  of  finance, 
and  who  had  a  personal  and  j)ecuniary  interest  in  the  welfare  of 
the  institutions  under  their  charge,  beyond  the  question  of  mere 
employment  and  salaries.  The  result  has  been  capitalized  sav- 
ings banks,  particularly  is  this  the  case  on  the  western  coast  of 
America. 

Savings  banks  under  the  laws  as  previously  stated  are  or  may 
be  of  two  classes,  namely:  Mutual  associations  or  capital  stock 
corporations.  The  mutual  bank  is  organized  without  capital 
stock  and  for  the  sole  purpose  of  accumulating,  holding,  and 
loaning  the  funds  of  their  members.  They  are  designated  as 
institutions  for  the  deposit  and  safe  keeping  of  money,  and  the 

[473] 


474  Savings  Baxk>;,  [ch.  xxxix. 

profits,  if  any,  arising  from  the  investment  of  such  deposits, 
are  annually  or  semi-annually  paid  to  the  depositors. 

Where  the  statute  authorizes  the  incorporation  of  such  sav- 
ings banks  (without  capital  stock)  neither  by  terms  or  implica- 
tion will  the  law  permit  the  bank  to  conduct  any  other  than  a 
savings  bank  business,  l^o  corporation  can,  by  law,  engage  in 
any  business  other  than  that  expressly  authorized  by  the  law  and 
its  charter.  The  purpose  of  this  provision  of  the  law  is  obvious. 
If  it  is  a  mutual  savings  bank  it  cannot  derive  power  by  impli- 
cation or  otherwise  to  enter  into  or  engage  in  any  business 
except  wholly  in  the  interest  of  its  members.  And  the  statute 
when  it  imposes  duties  to  be  performed  directing  the  class  or 
kind  of  securities  which  it  may  hold  or  invest  in  is  mandatory. 

The  limitations  and  powers  when  imposed  upon  the  managers 
or  officers  of  such  institutions  by  the  statute  must  be  strictly 
complied  with,  and  the  officers  in  such  cases  acting  for  such 
associations  become  trustees. 

The  laws  providing  that  the  deposits  may  be  loaned  and  in- 
vested (especially  if  it  direct  that  they  or  a  certain  proportion 
of  the  same  shall  be  invested  in  securities  of  a  definite  character) 
makes  the  managers  or  officers  who  direct  and  authorize  such 
investments  trustees,  and  as  such  they  are  held  to  the  strictest 
account. 

If  the  statute  making  these  provisions  is  violated,  the  officers 
or  trustees  become  personally  responsible,  and  they  should  be 
held  to  suffer. 

The  statute  directs  the  powers  and  limitations  in  the  conduct 
and  management  of  savings  banks.  The  prohibitions  and  limi- 
tations fixed  against  the  officers  and  directors  of  savings  banks, 
forbidding  them  from  borrowing  any  of  the  deposits  or  other 
funds  of  such  corporation  fully  establishes  the  principle  that 
they  are  acting  as  trustees,  and  it  is  a  well-established  principle 
of  law  that  trustees  cannot  personally  use,  in  any  manner,  either 
directly  or  indirectly,  the  funds  of  their  principal,  either  for 
profit  or  otherwise.  They  cannot  make  profit  from  them. 
Therefore  it  is  the  duty  of  directors  and  trustees  of  such  cor- 
porations to  strictly  comply  with  the  law  while  they  act  in  such 
positions  and  relationship  with  their  depositors. 

As  stated,  when  a  savings  institution  is  incorporated  without 
capital  stock,  they  are  merely  places  of  deposit  where  money 


CH.  XXXIX.]  Baxkixg.  475 

can  be  left  to  remain  or  to  be  taken  ont  at  the  pleasure  of  the 
owner,  and  under  such  terms  as  may  be  stipulated  in  the  by- 
laws and  agreed  upon  between  the  parties.  In  such  a  case  the 
assets  consist  in  loans  of  money  made  by  them  for  the  benefit 
of  the  members  or  depositors  from  whom  the  money  was  de- 
rived. In  case  of  loss,  they  haye  no  property  out  of  which  it 
can  be  paid,  and  the  loss  is  apportioned  pi'o  rata  among  the 
depositors. 

A  mutual  sayings  bank,  having  no  stock,  it  receives  the 
money  of  depositors  for  investment,  and  invests  it  in  securities 
taken  for  the  general  benefit  of  all  the  depositors.  When  the 
bank  is  incorporated  without  capital  stock,  it  becomes  merely 
an  incorporated  agency,  for  receiving  and  loaning  money  on 
account  of  those  to  whom  the  money  belongs.  After  the  neces- 
sary expenses  are  paid  for  its  management,  the  interest  re- 
ceived upon  the  investments  is  to  be  ratably  divided  among  the 
depositors.  The  trustees  and  officers,  in  the  absence  of  fraud 
or  peculation  of  the  funds  of  such  bank,  have  no  personal 
liability. 

A  savings  bank,  incorporated  for  the  sole  purpose  of  receiv- 
ing and  investing  the  deposits  and  all  the  earnings  of  the  bank 
other  than  those  which  go  to  the  payment  of  the  necessary 
expenses,  belong  to  the  depositors  ratably. 

Such  is  the  nature  of  a  mutual  savings  association. 

Savings  banks  incorporated  with  capital  stock  are  very  dif- 
ferent from  the  mutual  association.  In  such  a  bank  the  stock 
of  the  corporation  becomes  a  security  to  the  depositors  in  case 
of  loss.  The  trustees  or  directors  in  a  corporation  organized 
with  capital  stock  are  also  held  and  bound  by  the  same  law  in 
relation  to  the  funds  entrusted  to  them  as  are  the  trustees  in  a 
mutual  association.  And  if  the  bank  is  organized  with  a  single 
purpose  namely,  to  conduct  a  savi7igs  hank  business,  having  a 
capital  stock  does  not  give  it  power  to  conduct  a  commercial 
banking  business. 

Where  the  statute  by  special  act  provides  for  the  incorpora- 
tion of  a  capitalized  savings  bank,  defining  its  duties  and 
powers,  it  is  confined  in  its  operations  and  powers  to  the  pro- 
visions of  the  law  creating  it.  It  cannot  obtain  through  its 
charter  greater  powers  than  those  authorized  by  the  act  or  the 
law  authorizing  its  creation  and  defining  its  privileges. 


476  Savixgs  Ba^vks.  [ch.  xxxix. 

§  294,  State  regulation  of  business. 

Most  of  the  States  have  enacted  special  laws  authorizing  the 
formation  l)y  incorporation  of  savings  banks.  Where  such 
laws  are  enacted,  they  generally  define  the  duties  and  powers 
of  the  corporation,  prescribing  how  investments  are  to  be  made, 
and  the  class  of  securities  which  the  associations  may  loan 
money  on  or  hold. 

Where  the  statute  does  not  especially  provide  that  a  savings 
association  shall  have  capital  stock  it  may  be  incoi*porated  with- 
out cajiital,  and  when  incorporated  in  this  manner,  it  is  defi.ned 
to  be  a  mutual  savings  association. 

Where  the  statute  prescribes  that  no  bank  shall  be  incor- 
porated within  a  State  without  capital  stock,  and  i3x;es  the 
amount  of  capital  which  it  must  have  to  entitle  it  to  do  business 
in  certain  cities  and  towns,  composed  of  a  certain  number  of 
inhabitants,  a  mutual  savings  bank  or  association  without 
capital  stock,  under  the  provisions  of  such  a  statute  cannot  exist 
or  be  incorporated. 

Such  a  law  is  one  of  prohibition,  and  its  constitutionality  may 
be  questioned,  upon  the  ground  that  no  State  has  the  right  to 
prohibit  (by  imposing  a  capital  to  be  used  in  business  by)  a 
person  or  any  number  of  persons  from  forming  themselves 
together  for  the  purpose  of  conducting  a  lawful  occupation  or 
business,  especially  where  the  business  to  be  conducted  is  mutual 
and  confined  to  its  members  and  purely  for  their  benefit. 

Can  a  mutual  savings  bank  be  denied  the  right  to  do  business? 

A  lawful  calling  cannot  be  prohibited.  The  general  rule  as 
laid  doMm  by  Mr.  Cooley  in  his  work  on  constitutional  limita- 
tions is,  "  That  any  person  is  at  liberty  to  pursue  any  lawful 
culling  and  to  do  so  in  his  own  way,  not  encroaching  upon  the 
rights  of  others."  ^ 

A  mutual  sa^dngs  association  is  not  an  instittition  organized 
for  the  purpose  of  profit  to  stockholders,  or  for  the  benefit  of 
a  certain  number  of  their  members,  and  is  unlike  savings  banks 
organized  with  a  capital  stock.  The  pui-pose  of  a  mutual  sav- 
ings society  is  to  receive  the  money  of  its  members  for  safe 
keeping,  and  return  the  same  at  such  a  time  and  in  such  a 
manner  as  all  of  the  members  may  agree  upon.     If  any  profits 

1  Cooley's   Const.   Lim.    (7th   ed.)page  889. 


cii.  XXXIX.]  Baxkixg.  477 

are  made  by  the  investment  of  sncli  funds  they  are  to  be  di- 
vided among  the  members  ratably. 

Many  of  the  States,  however,  have  enacted  laws  wdiich  declare 
that  such  an  institution  cannot  do  business  within  the  State 
unless  it  has  a  capital  stock. 

The  effect  of  the  la^v  is  to  prevent  any  number  of  persons 
from  placing  into  the  hands  of  a  board  of  trustees  their  prop- 
erty or  money  for  safe  keeping  and  investment. 

In  bank  corporations  which  are  organized  purely  for  profit  to 
their  stockholders  the  deposits  are  not  held  strictly  as  trust 
fluids,  but  when  received  the  bank  becomes  a  debtor  for  such 
funds.  The  capital  stock  of  such  a  bank  is  then  held  as  a  secu- 
rity for  the  return  of  such  deposits  and  for  the  faithful  per- 
formance of  the  duties  required  by  such  corporations. 

The  Legislature  is  vested  with  the  power  to  regulate  and  con- 
trol and  fix  the  amount  of  capital  required  of  all  coi'porations 
of  a  private  nature.  Especially  those  organized  for  profit, 
where  the  profits  are  obtained  by  the  use  of  moneys  of  others, 
and  where  it  is  to  be  distributed  to  the  stockholders.  But  a 
mutual  savings  society  as  previously  stated  is  eleemosynary  in 
its  purpose  and  character,  and  is  not  possessed  of  power  to  do 
any  business  except  for  persons  who  become  members. 

But  the  right  of  the  Legislature  to  regulate  and  fix  the 
amount  of  capital  required  of  banks  of  all  classes  is  the 
accepted  law. 

§  295.  Depositors  in  mutual  savings  bank  constitute  the  bank. 

In  a  mutual  savings  bank,  that  is,  one  which  is  entitled  to 
exist,  and  has  no  capital  stock,  the  depositors  constitute  the 
bank. 

The  Supreme  Court  of  the  State  of  Xew  Hampshire,  in  the 
case  of  Cogswell  v.  Bank,  59  IST.  II.  43,  says: 

"  The  assets  of  savings  banks  consist  of  loans  of  money  made 
by  them  for  the  benefit  of  their  depositors,  from  whom  the 
money  was  derived,  and  correspond  to  the  capital  stock  in  banks 
of  discount,  and  depositors  in  savings  banks  stand  in  the  same 
relation  to  the  assets  of  the  bank  as  stockholders  to  banks  of 
discount.  Buimell  v.  Collinsville  Bank,  38  Conn.  203;  Simpson 
V.  Savings  Bank,  56  X.  H.  466,  467;  Osborne  v.  Byrne,  43 
Conn.  155.     They  are  the  owmers  of  the  funds  of  the  bank, 


478  Savings  Bais^ks.  [ch.  xxxix. 

entitled  to  share  in  its  profits  and  liable  to  bear  its  losses  pro 
rata,  and  iii)on  the  winding  up  of  the  business  of  the  bank  each 
depositor  is  entitled  to  his  share  of  the  assets  or  property  re- 
maining after  the  payment  of  the  debts.  The  depositors  are 
in  fact  the  bank,  %Yhile  the  corporation  is  but  an  agency  for 
receiving  and  loaning  the  money  of  the  depositors.  Colte  v. 
Society  for  Savings,  32  Conn.  173.  And  the  trustees  and  offi- 
cers of  the  bank  are  the  agents  of  the  depositors.  The  claim 
of  a  savings  bank  depositor  to  his  share  of  the  earnings  or 
deposits  cannot  be  considered  as  a  debt  against  the  bank. 
Gushing,  J.  Simpson  v.  Bank,  supra.  Xeither  can  such  share 
bf  set  off  by  a  depositor  against  a  debt  due  from  him  to  the 
bank.    Osborne  v.  Byrne,  supra.'' 

Mr.  Justice  Strong,  associate  justice  of  the  Supreme  Court 
of  the  United  States,  in  defining  a  savings  bank  without  capital 
stock  and  in  determining  the  rights  and  relationship  of  the 
depositor  to  the  bank,  says: 

"  It  is  not  a  commercial  partnership  nor  is  it  an  artificial 
being,  the  members  of  which  have  property  interests  in  it,  nor 
is  it  strictly  eleemosynary.  Its  purpose  is  rather  to  furnish 
a  safe  depository  for  the  money  of  those  members  of  the  com- 
munity disposed  to  intrust  their  property  to  its  keeping.  It  is 
somewhat  of  the  nature  of  such  corporations  as  church-wardens 
for  the  conservation  of  the  goods  of  a  parish,  the  college  of  sur- 
geons, for  the  promotion  of  medical  science  or  the  society  of 
antiquaries,  for  the  advancement  of  the  study  of  antiquity.  Its 
purpose  is  a  public  advantage,  without  any  interest  in  its  mem- 
bers. *  *  *  It  is  like  many  other  savings  institutions  in- 
corporated in  England,  and  in  this  country  during  the  last  sixty 
years.  Intended  only  for  provident  investment,  in  which  the 
management  and  supervision  are  entirely  out  of  the  hands  of 
the  parties  whose  money  is  at  stake,  and  which  are  quasi,  be- 
nevolent and  most  useful,  because  they  hold  out  no  encourage- 
ment to  speculative  dealing  or  commercial  trading.  *  *  * 
Among  the  earliest  savings  banks  are  some  in  [Massachusetts, 
organized  under  a  general  law  passed  in  lS34r,  which  provided 
that  the  income  or  profit  of  all  deposits  shall  be  divided  among 
the  depositors  with  just  deduction  of  reasonable  expenses. 
They  exist  also  in  Xew  York,  Pennsylvania,  ]\raine,  Connecti- 
cut and  other  States.     Indeed  until  recently,  the  primary  idea 


CH.  XXXIX.]  Baxking.  479 

of  savings  banks  has  been  that  it  is  an  institution  in  the  hands 
of  disinterested  persons,  the  profits  of  which,  after  deducting 
the  necessary  expenses  of  conducting  the  business  inure  wholly 
to  the  benefit  of  the  depositors  in  dividends  or  in  a  reserve  sur- 
plus for  their  greater  security." 

§  296.  Depositor  has  no  liability  in  capitalized  saving^s  bank. 

A  depositor  in  a  mutual  savings  society  is  declared  as  hold- 
ing the  same  relationship  as  stockholders  in  a  capitalized  bank 
and  may  be  held  liable  for  their  proportion  of  the  losses  if  any 
exist  at  the  time  of  winding  up  the  affairs  of  the  bank.  While 
a  depositor  in  a  capitalized  savings  bank  has  no  liability  at  any 
time. 

§  297.  Nature  of  deposit  in  a  capitalized  savings  bank. 

A  deposit  in  a  savings  bank  may  be  general  or  special. 

A  general  deposit  in  a  savings  bank  is  one  which  loses  its 
identity  and  is  intermingled  with  other  deposits. 

A  special  deposit  is  one  which  is  kept  separate  and  apart 
from  other  deposits. 

A  general  deposit  may  be  one  designated  as  an  ordinary 
deposit  and  paid  as  ordinary  deposits  to  depositors  in  com- 
mercial banks  without  notice.  A  general  deposit  may  also  bo 
a  term  deposit,  where  the  depositor  deposits  his  money  with 
the  bank  agreeing  not  to  withdraw  the  same  without  first  hav- 
ing given  the  bank  notice,  which  notice  designates  the  time 
when  the  deposit  is  to  be  repaid. 

A  special  deposit  when  received  and  allowed  to  be  received 
by  a  savings  bank,  the  bank  in  the  care,  safe  keeping  and 
return  thereof,  is  governed  by  the  same  law  of  responsibility 
relating  to  and  governing  special  deposits  held  by  commercial 
banks. 

§  298.  Trust  deposit. 

A  trust  deposit  although  entered  on  the  pass-book  as  such, 
is  not  such  unless  intended  to  be. 

One  making  a  deposit  in  a  savings  bank  which  is  declared 
in  the  book  to  be  in  trust  for'another,  does  not  thereby  create 
a  trust  if  the  depositor  had  not  at  the  time  the  intention  of 


2  Cleveland    r.    Hampden    Savings    Bank,    182    Masj^.    110;    Cunningham 
V.  Davenport,  147  N.  Y.  43. 


480  Savings  Banks,  [cii.  xxxrx. 

§  299.  Sules  regulating  and  coveming  depositors. 

A  savings  bank  may  make  such  rules  and  regulations  for 
receiving  and  for  the  withdrawal  of  deposits  as  are  reasonable; 
and  when  understood  by  the  depositor  they  are  in  the  nature 
of  a  contract,  and  are  binding  upon  both  the  bank  and  the 
depositor. 

A  rule  printed  in  the  pass  book  issued  by  the  bank  vrlien 
properly  made  knowTi  to  a  depositor,  receiving  the  same,  and 
in  w'hich  he  has  credit  of  a  deposit  made  in  the  bank  if  lawful 
and  reasonable  is  a  part  of  the  contract  between  him  and  the 
institution.^ 

§  300.  Gift  —  Savings  bank  deposit  in  trust. 

''A  gift,  whether  in  the  form  of  a  trust,  or  otherv/ise,  always 
involves  the  intention  of  the  donor;  and  when  the  trial  court 
has  found  that  there  was  a  gift  which  took  the  form  of  a  de- 
posit in  a  savings  bank  in  trust  for  the  donee,  and  the  Appel- 
late Division  has  unanimously  decided  that  the  findings  "of 
fact  are  supported  by  the  evidence,  the  finding  cannot  be 
questioned  in  the  Court  of  Appeals."  ^ 

§  301.  Amount  of  deposit  received  may  be  governed  by  statute. 

The  amount  received  on  deposit,  from  any  one  individual 
or  firm  may  be  regiilatecl  by  statute;  but  this  privilege  more 
properly  belongs  to  the  powers  vested  in  the  board  of  trustees 
or  directors,  and  is  made  a  rule  by  the  adoption  of  a  by-law 
to  that  effect.^ 

§  302.  When  special  deposit  preferred. 

When  the  by-laws  of  a  mutual  savings  bank  provide  what 
classes  of  deposits  may  be  received  by  the  bank,  specifying 
them:  1.  As  weekly  deposits.  2.  Special  deposits  jand  3. 
Dime  or  regular  deposits,  one  who  makes  a  special  deposit 
and  receives  a  certificate  in  the  words  and  figures  following: 

"  Office  of  the  Washington  County  Savings  Ins. 
"  IIagekstown,  November  20,  1873. 
"  Received    from    Tyron    H.    Edwards,    one   thousand    and 
thirty  dollars,  on  special  deposit,  to  draw  interest  from  July 

3  Israel  t'.  Bowery  Savings  Bank,  4  Farlcigh  v.   Cadman,   159  N.  Y. 

n  Daly    (N.  Y.)    .507;   Eaves  r.  The  '     100. 

People's  Savings  Bank,  27  Conn.  228.  STavlor    r.    Empire    State    Bank, 

GG  Hun   (N.  Y.)   538. 


CH.  XXXIX.]  Baxkixg.  481 

1,  1873,  at  the  rate  of  three  per  cent,  semi-annually,  if  not 
drawn  out  within  one  year." 

It  is  held  by  the  court  in  the  case  of  Heironimus  v.  Sweeney, 
55  Am,  St.  Rep.  333,  to  be  a  special  deposit  and  as  such  be- 
comes a  debt  of  the  bank,  which  must  be  paid  before  the 
other  depositors. 

The  opinion  of  the  court  evidently  is  upon  the  theory-  that 
it  was  borrowed  money,  rather  than  a  deposit,  and  as  such 
became  an  obligation  or  debt  and  not  a  regular  and  ordinary 
deposit. 

Where  a  depositor  is  entitled  to  preference  and  the  bank 
is  a  mere  trustee,  a  court  of  equity  has  jurisdiction.*^ 

§  303.  Notice  of  withdrawal,  when  not  required. 

There  are  but  few  if  any,  savings  banks  that  do  not  reser\'e 
the  right  by  the  enactment  of  a  by-law  of  requiring  depositors 
to  give  notice  of  their  intention  to  withdraw  their  deposits. 
This  requirement,  or  rule,  may  be  waived  by  the  bank  as  it 
generally  is,  except  in  times  of  a  money  stringency. 

If  the  bank  refuses  to  pay  on  the  ground  that  the  deposit 
has  previously  been  paid  to  another,  a  notice  to  the  bank  is 
not  required.^ 

§  304.  By-laws  of  savings  banks. 

The  Franklin  Savings  Bank  of  Massachusetts,  by  a  by-law, 
which  was  enacted  by  the  bank,  for  its  protection  and  entitled 
■''Security  Against  Fraud"  and  which  was  as  follows: 

"As  the  officers  of  the  institution  may  be  unable  to  identify 
every  depositor,  the  corporation  will  not  be  responsible  for 
loss  sustained,  when  a  depositor  has  not  given  notice  of  his 
book  being  stolen  or  lost,  if  such  book  be  paid  in  whole  or  in 
part  on  presentment.  In  all  cases  a  payment  upon  present- 
ment of  a  deposit  book  shall  be  a  discharge  to  the  corporation 
for  the  amount  so  paid." 

The  court  in  discussing  this  by-law  and  the  liability  of  the 
l)ank  says: 

6  Commomvealth  r.  Bank  of  Penn-  (Mass.)    320;   Heath  v.  Portsmouth 

sylvania,  .3  Watts  and  Serg.  184.  Savings    Bank,    88    Am.    Dec.    194; 

"  7  Eaves  i\  People's  Savings  Bank.  People's  Savings  Bank  r.  Cupps,  91 

27  Conn.  228,  71  Am.  Dec.  59;  Wall  Pa.   St.  315. 
r.   Prov.   Savings   In.stitute,  6  Allen 

31 


482  SAVI^"CTS  Ba^'ks,  [ch.  xxxix. 

"  The  plaintiff  contends  that  the  sole  object  of  the  by-law 
is  to  protect  the  bank  against  the  risk  of  mistake  as  to  the 
personal  identity  of  its  depositors,  and  therefore  that  it  does 
not  apply  to  a  case  where  there  has  been  no  mistake  as  to 
identity,  but  the  bank  has  paid  upon  a  forged  order  purporting 
to  be  signed  by  the  depositor.  This  argument  would  be  very 
strong,  perhaps  conclusive,  if  this  by-law  had  not  contained 
the  last  clause.  It  would  then  have  been  the  same,  with  only 
immaterial  verbal  changes,  as  the  by-law  considered  in  the 
case  of  Jochumsen  v.  Suffolk  SaA'ings  Bank,  3  Allen,  87,  cited 
by  the  plaintiff.  But  the  added  provision,  that  "  in  all  cases 
a  payment  upon  presentation  of  a  deposit  book  shall  be  a  dis- 
charge to  the  corporation  for  the  amount  so  paid,"  enlarges 
the  by-law,  and  extends  its  operation  to  other  cases  than  those 
in  which  there  is  a  mistake  as  to  the  identity  of  the  depositor. 
Unless  it  has  this  effect,  it  is  without  force  and  useless.  The 
bank  is  obliged  to  deal  with  a  very  large  number  of  depositors, 
most  of  whom  must  be  strangers  to  its  officers.  They  are 
unable  to  identify  the  persons  of  the  depositors,  and  it  is 
equally  impossible  that  they  should  know  their  handwriting. 
The  danger  of  fraud,  by  payments  upon  forged  orders  ac- 
companied by  the  book,  may  be  as  great  as  by  payments  to 
persons  who  falsely  personate  the  depositor  and  present  the 
book.  In  either  case  we  think  the  purpose  of  the  by-law  was  to 
authorize  the  bank  to  rely  upon  the  presentation  of  the  book 
as  its  security  against  fraud. 

In  the  case  at  bar,  therefore,  a  majority  of  the  court  is  of 
opinion  that  if  the  bank,  using  reasonable  care,  in  good  faith, 
paid  a  whole  or  a  part  of  the  plaintiff's  deposit  upon  the  pres- 
entation of  his  book  it  is  a  case  provided  for  by  the  by-law, 
and  the  corporation  is  discharged  to  the  amount  so  paid." 
Levy  V.  Franklin  Sav.  Bank,  117  Mass.  448. 

Another  by-law  which  was  enacted  by  the  Bristol  County 
Savings  Bank  of  Massachusetts  for  the  protection  of  the  bank 
was  as  follows: 

''As  the  officers  of  the  institution  will  not  be  responsible  for 
any  loss  sustained  when  a  depositor  has  not  given  notice  of  his 
book  being  stolen  or  lost,  if  such  book  be  paid  in  whole  or 
part  on  presentation." 

The  validity  and  effect  of  the  foregoing  by-law  is  discussed 


CH.  XXXIX.]  Eanking,  483 

in  the  case  of  Goldrick  r.  Bristol  County  Sav.  Bank,  123  Mass. 
320.  This  is  an  important  and  valuable  case,  for  the  reason 
that  the  plaintiff,  who  was  the  depositor  could  not  write  his 
name,  and  was  accustomed  to  make  his  mark,  in  the  form  of  a 
cross.  Ilis  l)Ook  was  stolen  and  a  large  portion  of  the  deposits 
were  withdrawn  from  the  bank  by  one  impersonating  the 
plaintiff  and  owner  of  the  deposit.  The  court,  in  this  case, 
held  that  the  bank  was  not  liable  as  it  had  used  reasonable 
care  and  the  plaintiff  and  owner  of  the  book  failed  to  give  the 
bank  notice  that  the  book  had  been  stolen. 

The  bank-book  contained  a  copy  of  the  by-laws. 

The  facts  in  this  case  are  interesting  and  the  opinion  of  the 
court  of  sufficient  importance  to  justify  the  giving  of  it  in 
full: 

"  One  of  the  by-laws  of  the  defendant  bank  provides  that 
'  as  the  officers  of  the  institution  may  be  unable  to  identify 
every  depositor  the  institution  will  not  be  responsible  for  any 
loss  sustained,  when  a  depositor  has  not  given  notice  of  his 
book  being  stolen  or  lost,  if  such  book  be  paid  in  whole  or 
part,  on  presentation.'  When  the  plaintiff  made  his  deposits, 
he  assented  to  the  by-laws,  and  it  thus  became  a  part  of  the 
contract  betw^een  the  parties.  The  plain  object  of  this  by-law 
was  to  exonerate  the  bank  from  loss  occasioned  by  the  ina- 
bility of  its  officers  to  identify  the  depositor,  and  to  throw  upon 
the  depositor  the  risk  of  keeping  his  book  safely. 

The  presiding  judge  who  tried  the  case  at  bar  without  a 
jury  was  justified  in  finding,  upon  the  evidence,  that  the  bank 
in  good  faith  and  wdthout  negligence  paid  the  amount  which 
is  sued  for,  upon  presentation  of  the  plaintiff's  book,  to  some 
person  who  had  stolen  or  otherwise  obtained  possession  of  it, 
and  who  fraudulently  personated  the'  plaintiff,  no  notice  that 
the  book  was  stolen  having  been  given  to  the  bank.  This  is 
exactly  the  case  w^hich  the  by-law  was  intended  to  provide  for. 
and  the  plaintiff  cannot  recover  wdthout  a  violation  of  tli'-i 
terms  of  the  contract  which  the  bank  made  with  him.  Wall 
V.  Provident  Inst,  for  Sav,,  3  Allen,  96;  Levy  v,  Franklin 
Sav.  Bank,  117  Mass.  448." 

Another  important  case  tried  by  the  Supreme  Court  of 
Massachusetts  is  the  case  of  Kimins  v.  Boston  Five  Cent  Sav. 
Bank,  141  MasB.  33. 


484  Savings  Baxks.  [cii.  xxxix. 

The  facts  in  tins  case  are  stated  as  follows: 

"  The  plaintiff  was  a  dei^ositor  in  the  defendant  bank  and 
liad  one  of  its  usual  books  of  deposit.  This  book  showed  a 
deposit  on  Mav  24,  1875,  one  on  May  24,  1880;  two  in  1881 
and  one  on  April  24,  1882,  also  various  payments,  the  first 
being  on  May  4,  1880,  and  the  last  in  1883.  All  these  pay- 
ments were  made  on  forged  orders,  purporting  to  be  signed  by 
the  plaintiff,  by  her  mark,  and  witnessed  directing  the  bank  to 
pay  the  respective  amounts  to  a  certain  person  who  was  the 
nephew  of  the  plaintiff.  This  nephew  forged  the  orders.  Pay- 
ments were  made  to  said  nephew  on  his  presenting  the  orders 
and  the  plaintiff's  deposit-book,  wherein  was  entered  the 
amount  paid  in  each  case,  in  the  usual  way  and  the  book  was 
then  returned  to  said  nephew.  In  each  case  the  book  was 
stolen,  or  fraudulently  obtained  from  the  plaintiff  by  said 
nephew,  he  knowing  the  place  where  the  same  was  kept,  and 
taken  each  time  to  get  money  on  from  the  bank.  The  several 
deposits  as  they  appear  in  the  book  were  made  by  the  plain- 
tiff' herself;  and  after  entry  thereof  she  received  the  book 
back  again.  A  deposit  was  made  on  March  7,  1881.  At  this 
time  the  plaintiff's  deposit-book  showed  three  payments  on 
forged  orders.  The  plaintiff  could  neither  read  nor  write,  but 
it  did  not  appear  that  the  defendant  had  any  knowledge  that 
the  plaintiff  could  not  read,  except  in  so  far  as  such  knowl- 
edge is  imputable  from  the  fact  that  the  plaintiff  instead  of 
signing  her  name  made  her  mark.  Plaintiff  had  no  knowledge 
that  any  sum  had  been  draAvn  on  the  forged  orders  until  the 
whole  had  been  drawn,  unless  such  knowledge  is  imputable  to 
her  on  the  facts  herein  appearing.  The  bank  had  no  knowledge 
that  the  orders  Avere  forged  or  the  book  had  been  stolen,  or 
fraudulently  taken  from  the  plaintiff. 

The  bank  when  it  paid  the  several  amounts  on  the  forged 
orders,  paid  the  same  in  good  faith,  and  used  diligence  in  the 
premises. 

The  deposit-book  presented  to  the  plaintiff  when  she  made 
her  first  deposit  contained  the  by-laws  as  they  existed  upon 
May  24,  1875,  the  date  of  the  first  deposit,  and  the  plaintiff 
duly  subscribed  at  that  time  the  rules  and  regulations  of  the 
bank  (by  making  her  mark,  which  was  witnessed)  in  the  fol- 
lowing form: 


cii.  XXXIX.]  Baxking.  485 

''  The  subscribers  whose  signatures  appear  below,  or  the 
agents  of  such  subscribers,  agree  to  be  governed  and  to  abide 
by  the  regulations  of  this  institution  as  expressed  in  the  by- 
laws of  the  same." 

Among  the  by-laws  contained  in  the  plaintiff's  bank-book 
was  one  giving  the  defendant's  trustees  power  *  to  alter  or 
amend  these  by-laws,  as  the  officers  of  the  institution  may  be 
unable  to  identify  every  depositor,  transacting  business  at  the 
bank,  the  institution  will  not  be  responsible  for  loss  sustained 
where  the  depositor  has  not  given  notice  of  his  book  being 
stolen  or  lost,  if  such  book  be  paid  in  whole  or  in  part  on. 
presentment." 

On  September  13,  1875,  this  by-law  was  amended  as  fol- 
lows: 

"  In  all  cases  a  payment  upon  presentation  of  a  deposit- 
book  shall  be  a  discharge  to  the  corporation  for  the  amount 
so  paid." 

This  by-law  as  amended,  has  been  in  force  since  that  time. 
The  amendment  was  duly  made  in  accordance  with  the  pro- 
visions in  the  by-laws  for  their  amendment,  hut  the  plmntiff 
had  no  actual  knowledge  of  such  change  in  the  hy-laws,  unless 
such  knowledge  is  imputable  to  her  from  the  facts  herein  stated, 
or  she  is  presumed  to  have  such  knowledge . 

The  bank  did  not  give  the  plaintiff  a  new  book  with  the 
by-law  as  amended  nor  did  it  request  the  surrender  of  the 
old  book,  and  the  acceptance  of  a  new  book  containing  the 
by-laws  as  amended;  and  it  is  not  the  custom  of  the  bank  to 
give  notice  to  depositors  of  change  in  the  by-laws,  or  make 
any  change  in  deposit-books  in  such  cases;  and  her  signature 
was  not  requested  to  the  amended  by-laws,  and  it  is  not  the 
custom  of  the  bank  to  make  requests  for  signatures  in  such 
cases.  The  payments  on  the  forged  orders  were  all  made  after 
the  by-law  icas  amended." 

The  court,  on  rendering  its  opinion  says: 

"  Tlie  only  defense  is,  that  the  defendant  bank  was  author- 
ized to  make  the  payments  to  the  plaintiff's  nephew  on  the 
forged  orders  and  the  presentation  of  the  deposit-book.  The 
authority,  if  it  existed,  must  have  been  given  by  the  plaintiff 
when  she  made  the  contract  of  deposit,  or  must  have  arisen 
from  an  estoppel  worked  by  her  subsequent  conduct.     The  facts 


486  Savings  Banks,  [ch.  xxxix. 

stated  do  not  show  an  estoppel,  and  the  ruling  of  the  court 
that  the  plaintiff  could  not  recover  must  have  been  on  the 
ground  that  the  contract  authorized  the  payments.  By  the 
contract,  the  plaintiff  agreed  to  be  governed  by  the  by-laws  of 
the  bank,  and  the  by-laws  were  contained  in  the  deposit-book 
given  to  her. 

"  By  the  by-laws  as  they  existed  at  the  time  the  contract 
was  signed  by  the  plaintiff,  the  bank  had  no  authority  to  make 
the  payments.  They  authorized  a  payment  to  one  who  falsely 
personated  the  depositor  in  presenting  the  stolen  book,  Gold- 
rick  v.  Bristol  County  Sav.  Bank,  123  Mass.  320;  but  not  to 
one  who  falsely  claimed  to  act  under  authority  from  the  de- 
positor, Jochumsen  v.  Suffolk  Sav.  Bank,  3  Allen,  87;  Levy 
V.  Franklin  Sav.  Bank,  117  Mass.  448. 

''  The  defendant  does  not  dispute  its  liability,  if  the  case 
is  to  be  determined  on  the  construction  of  the  by-law  in  force 
when  the  contract  was  made,  but  it  contends  that  the  by-law 
of  1875  became  incorporated  into  the  contract  between  the 
parties,  and  a  part  of  it.  If  this  was  so,  it  would  have  given 
the  defendant  authority  to  make  the  payments.  Donlan  v. 
Provident  Inst,  for  Sav.,  127  Mass.  183. 

"  No  notice  was  given  to  the  plaintiff  of  this  by-law,  and 
she  had  no  knowledge  of  it,  and  the  deposits  made  after  it  was 
passed  must  be  taken  to  have  been  made  under  the  original 
contract. 

"  The  defendant  contends  that  the  subsequent  by-law  bo- 
came  part  of  the  contract  of  deposit,  by  force  of  the  Gen. 
Stats.,  chap.  57,  §  147  (Pub.  Stats.,  chap.  116,  §  29),  which 
provided  that  the  deposits  might  be  withdrawn  at  such  time 
and  in  such  manner  as  the  corporation  in  its  by-laws  directed, 
and  of  the  by-law  existing  when  the  contract  was  made,  whicli 
jirovided  for  making  changes  in  the  by-laws,  with  the  plain- 
tiff's agreement  to  abide  by  the  regulations  of  the  institution 
as  expressed  in  its  by-laws. 

The  authority  of  the  defendant  to  make  by-laws  regulating 
the  time  and  manner  in  which  deposits  might  be  withdrawn 
did  not  empower  it  to  change,  without  the  consent  of  the  plain- 
tiff, a  contract  it  had  made  with  her,  nor  to  discharge  the  debt 
to  her  by  payment  to  a  stranger;  nor  was  it  any  part  of  the 


cii.  XXXIX.]  Banking.  487 

plaintiff's   contract   that  the   defendant   might   do   this.      See 
Donlan  v.  Provident  Institution  for  Savings,  uhi  supra. 

''  The  by-law  in  question  is  not  one  which  merely  concerns 
the  regulations  of  the  institution  as  to  the  time  and  manner  of 
paying  deposits  to  depositors.  It  materially  affects  the  con- 
tract of  deposit  in  the  interest  of  the  bank,  and  not  of  the  de- 
positor; and  if  it  applies  to  contracts  made  before  it  was  passed, 
it  authorizes  the  bank  to  pay  the  money  of  depositors  to  those 
not  authorized  by  the  contract  to  receive  it,  and  to  relieve  the 
bank  from  its  obligation  to  pay  it  to  the  depositors.  Authority 
to  make  such  a  material  change  in  the  contract,  without  the 
knowledge  of  the  plaintiff,  cannot  be  inferred  from  her  agree- 
ment to  abide  by  the  regulations  of  the  institution." 

A  still  later  Massachusetts  case  is  Kingsley  v.  Whitman  Sav- 
ings Bank,  182  Mass.  252.  The  bank  had  adopted  a  by-law, 
which  reads  as  follows:  ''As  the  officers  of  this  institution  may 
be  unable  to  identify  every  depositor  transacting  business  at 
the  bank,  the  institution  will  not  be  responsible  for  loss  sus- 
tained where  the  depositors  have  not  given  notice  that  their 
books  have  been  stolen  or  lost,  if  the  sums  of  money  entered 
in  such  book  shall  have  been  paid  in  whole  or  in  part  on  pres- 
entation of  said  book." 

It  was  held  in  this  case  that  the  object  of  the  by-law  was  to 
avoid  loss  from  inability  to  identify  the  depositor,  and  that  it 
did  not  prevent  a  depositor  from  recovering  from  the  bank  a 
deposit  which  had  been  paid  by  the  bank  to  another  person 
on  presentation  of  the  bank-book  with  a  forged  order. 

The  court  in  deciding  this  case  reviews  in  brief  the  cases  pre- 
viously before  the  court,  namely,  the  case  of  Jochumsen  v. 
Suffolk  Savings  Bank,  3  Allen,  87;  also,  the  case  of  Levy  v. 
Franklyn  Savings  Bank,  117  Mass.  448;  also,  the  case  of  Gold- 
rick  V.  Bristol  County  Savings  Bank,  123  Mass.  320;  also,  the 
case  of  Kimins  v.  Boston  Five  Cent  Savings  Bank,  141  Mass. 
33,  and  the  case  of  McCarthy  v.  Provident  Institution  for 
Saving,  159  Mass.  527. 

Affirming  the  law,  as  previously  presented  by  the  courts, 
and  re-states  by  quoting  from  the  case  in  117  Mass.,  the  law  to 
be  as  follows:  "  By  the  by-laws  as  they  existed  at  the  time  the 
contract  was  signed  by  the  plaintiff,  the  bank  had  no  authority 
to  make  the  payments.     They  authorized  the  payment  to  one 


48S  Savings  Banks.  [en.  xxxix. 

who  falsely  personated  the  depositor  in  presenting  the  stolen 
book;  *  *  *  but  not  to  one  who  falsely  claimed  to  act 
under  authority  from  the  depositor. 

"  AVe  have  no  doubt  that  under  our  decision  this  is  a  correct 
statement  of  the  law,  and  that  on  the  facts  of  the  case  before 
us  the  by-la\v  has  no  application." 

The  effect  of  a  by-law  is  discussed  by  the  Supreme  Court  of 
the  State  of  Michigan  in  the  case  of  Ackenhausen  v.  People's 
Savings  Bank,  110  Mich.  175.  In  this  case  the  bank  had 
adopted  the  following  by-laws: 

"3.  On  making  the  first  deposit  the  depositor  shall  sign  his 
or  her  name  in  the  signature  book  of  the  institution,  which 
contains  a  copy  of  these  rules  and  regulations,  and  to  which 
the  depositor  will  assent  before  his  or  her  deposit  can  be  re- 
ceived by  this  institution. 

"  7.  Money  deposited  in  this  institution  will  be  entered  in 
a  book  which  will  be  given  to  each  depositor.  This  small  book 
will  be  the  depositor's  voucher,  or  evidence  of  his  or  her  de- 
posit in  the  institution.  When  money  is  withdrawn,  this  book 
given  to  the  depositor  shall  be  brought  into  the  bank  to  have 
the  payments  entered  therein.  Depositors  can  draw  money 
themselves,  or,  in  case  of  absence  or  sickness,  it  will  be  paid 
to  their  order,  properly  witnessed,  and  accompanied  by  the 
book. 

"  10.  While  the  officers  of  this  institution  will  do  their  ut* 
most  to  prevent  fraud,  yet,  as  they  will  be  unable  to  identify 
every  depositor,  this  institution  will  not  be  responsible  for  loss 
sustained  when  a  book  has  been  mislaid,  stolen,  or  lost,  if, 
before  the  cashier  is  notified  thereof,  such  book  be  paid  in  whole 
or  in  part  on  being  presented. 

"  11.  If  a  book  be  mislaid,  stolen  or  lost,  the  owner  is  re- 
quired to  give  immediate  notice  of  the  fact  to  the  cashier  of 
this  institution." 

There  was  also  in  force  at  the  time  of  the  adoption  of  the 
foregoing  by-laws  by  the  bank,  the  following  statutory  laws 
of  the  state,  which  reads  as  follows: 

"All  deposits  in  said  bank  shall  be  repaid  to  the  depositors 
or  his  or  her  lawful  representative  when  required,  at  such  time 
or  times,  and  wath  such  interest  and  under  such  regulations 
as  the  board  of  directors  of  the  bank  from  time  to  time  pre- 


CH.  XXXIX.]  Bankiistg.  489 

scribes,  wliieli  regulations  shall  be  printed  and  conspicuously 
exposed  in  some  place  accessible  and  visible  to  all  in  the  busi- 
ness office  of  said  bank. 

"A  pass-book  shall  be  issued  to  each  depositor  in  the  savings 
department,  containing  the  rules  and  regulations  adopted  by 
the  board  of  directors  governing  such  deposits,  in  which  book 
shall  be  entered  each  deposit  made  by,  and  each  payment  made 
to  such  depositors;  and  no  payment  or  check  against  any  such 
savings  account  shall  be  made  imless  accompanied  by  and  en- 
tered in  the  pass-book  issued  therefor,  except  for  good  cause^ 
and  on  assurances  satisfactory  to  the  officers  of  the  bank." 

The  court  says :  "  It  is  insisted  that  the  bank  complied  with 
these  provisions  of  the  statute,  and  that  plaintiff,  because  of 
his  contract  with  the  bank,  has  no  cause  of  action  against  it  " 
(the  court  citing  the  following  cases):  SchoenAvald  v.  Bank, 
57  :^^.  Y.  418;"Appleby  v.  B^ank,  62  :N'.  Y.  12;  Sullivan  v. 
Lewiston  Institution,  56  Me.  507;  Goldrick  v.  Bank,  123  Mass. 
320. 

The  court  then  proceeding,  says: 

''  The  cases  just  cited  undoubtedly  hold  that  under  the  laws 
of  this  State,  where  the  decisions  were  rendered  and  the  by- 
laws in  force,  in  those  banks  there  was  no  liability;  and  if  the 
savings  banks,  which  were  parties  to  the  litigation  involved 
in  those  cases,  w^ere  created  under  like  laws,  and  possessed  ^\'ith 
the  same  powers  as  savings  banks  possess  in  this  State,  the 
decisions  would  be  conclusive." 

The  court  then  proceeds  to  discuss  the  nature  of  a  mutual 
savings  society  and  a  savings  bank  capitalized  and  organized 
under  the  general  laws  of  a  State,  and  finally,  in  determining 
the  law  in  this  case  and  the  effect  of  the  by-law  adopted  by 
the  bank,  says: 

"We  think  the  requirement  of  the  statute  that  the  deposits 
shall  be  paid  to  the  depositor  or  his  legal  representatives  can- 
not be  changed  by  a  by-law,  unless  the  attention,  of  the  depositor 
is  called  to  the  hy-law  and  he  assents  thereto,  actiialh/  or 
impliedly." 

As  a  conclusion  upon  this  subject,  it  may  be  stated  that  the 
general  rule  laid  down  is  as  follows : 

''  The  general  rule  is,  that  a  hy-law  adopted  by  a  savings  hank 
to  regulate  its  business,  and  for  the  repayment  of  its  deposits,  if 


490  Savixgs  Banks.  [ch.  xxxix. 

reasonable  and  not  in  violation  of  any  statutory  law,  if  Icnown- 
to  the  party  dealing  with  the  hank,  is  binding  between  them  arid 
as  between  the  bank  and  the  depositor,  the  by-law  becomes  a 
contract,  unless  the  bank  is  negligent. ^^^ 

It  is  clearly  established  that  a  depositor  is  not  boimd  by  a 
by-law  in  the  beginning  unless  he  knows  of  it.^ 

If  the  depositor  cannot  read  he  should  get  some  one  to  read 
the  rules  to  him,  and  it  wonld  seem  to  be  the  duty  of  the  bank 
to  aid  him  in  this  particular,  and  to  know  that  the  rules  have 
b(en  read  to  him.^'^ 

The  rule  is  icell  established  that  if  a  by-law  however  rea- 
sonable and  in  all  respects  made  in  compliance  with  the  law,  will 
not  relieve  the  hank  of  liability,  if  negligent}^ 

§  305.  Pass-books. 

The  pass-book  issued  to  a  depositor  and  in  which  entries  of 
deposits  are  made,  by  the  reciving  teller  of  a  savings  bank, 
are  original  books  of  entry ;  and  entitled  to  as  much  credit  as 
evidence  as  the  books  retained  by  the  bank.^^ 

Where  a  figiire  in  a  pass-book  is  obscure  and  a  disagree- 
ment arises  between  the  bxink  and  the  owner  of  the  book,  as  to 
the  sum  intended  to  be  represented,  the  true  meaning  is  a  ques- 
tion of  fact  for  the  jury.^^ 

A  pass-book  in  Xew  York  is  not  negotiable  and  possession 
by  a  party  other  than  the  owner  does  not  constitute  proof  of  a 
right  to  draw  money  thereon. ^^ 

In  Massachusetts  a  pass-book  may  be  assigned.  The  deliv- 
eiy   of  the   savings  book  with  the  intention   of  transferring 

8  Heath     v.    Portsmouth    Savings  127    Mass.    18.3,   34   Am.   Rep.   358; 

Bank.   46   N.   H.    78 ;    88   Am.   Dec.  Brown   v.   Merrimac   River   Savings 

Warhus  v.  Bowery  Savings  Bank,  21  Bank,   67   X.   H.   549,  47   Am.   Rep. 

N.  H.  78;  Mitchell  r.  Home  Savings  171;   Kummel   r.  Germania  Savings 

Bank,  38  Hun   (X.   i'.)    255.    Israel  Bank,  127  X.  Y.  488,  28  X.  E.  398; 

V.    Bowerv    Savings    Bank,    9    Daly  Smith   r.   Brooklyn   Sav.   Bank,   101 

(X.  Y.)    .507.  *  X.  Y.  58,  54  Am.'  Rep.  653;  Wegner 

SAckenhausen  r.  People's  Savings  v.    Second   Ward   Savir'--   Bank,   76 

Bank.    110    Mich.    175;    68    N.    W.  Wis.  242,  44  X.  W.  1096. 
118:  G4  Am.  St.  Rep.  338.  12  Knox  v.  Savings  BanK,  93  Mich. 

10  Burrill  r.  Dollar  Savings  Bank,  511. 

92  Pa.  St.  134,  37  Am.  Rep.  669.  13  Kux  r.  Savings  Bank,  93  Mich 

11  Sullivan    r.    Lewiston    Savings        511. 

Inst.,  56  Me.  507;  96  Am.  Dec.  .500;  14  Kummel    v.    G.    S.    Bank,    127 

Donlan   r.   Provident  Savings   Inst.,       X'.   Y.   488. 


<ir.  XXXIX.]  Banking.  491 

title  to  the  money  deposited  transfers  the  equitable  title  to  the 
deposit.  ^^ 

§  306.  Savings  banks  borrowing  money. 

The  power  of  a  savings  bank  to  borrow  money  may  be  de- 
termined by  the  terms  of  its  charter  and  its  mode  of  dealing. 
Where  the  relation  between  the  bank  and  its  depositors  be- 
comes one  of  debtor  and  creditor,  a  savings  bank  has  the  im- 
plied right  to  borrow  money  for  the  bank  by  negotiating  or 
pledging  any  of  its  securities. 

Tliis  proposition  can  only  be  sustained  upon  the  theory  that 
the  bank  becomes  a  debtor  and  is  not  that  of  trustee  holding  the 
deposits  in  trust  for  the  depositors.  ^^ 

In  New  Jersey  where  a  savings  bank  was  incorporated  by  a 
special  charter,  held  that  it  had  the  implied  power  inherent 
in  corporations  created  for  business  purposes,  of  borrowing 
money  and  of  making  negotiable  paper  or  a  pledge  of  its  se- 
curities as  a  means  of  borrowing. ^^ 

-§  307.  Investments. 

Savings  banks  are  required,  usually  by  the  statute  of  the 
State  w'here  incorporated,  to  invest  or  lend  their  deposits  in 
a  prescribed  manner  upon  the  security  of  land,  bonds  or  stocks, 
the,  statute  usually  desig-nating  the  kind  of  bonds  or  stocks 
which  the  bank  may  loan  upon  or  invest  in.  In  some  of  the 
States  savings  bank&  are  vested  by  law  with  the  power  to  dis- 
count and  purchase  paper.  This  is  an  attribute  and  a  power 
belonging  to  commercial  banks,  but  where  the  law  of  the  State 
imposes  no  objection  and  the  charter  of  the  bank  grants  the 
authority,  it  may  make  discounts  and  purchase  negotiable 
paper.^® 

A  savings  bank  is  prohibited  from  entering  into  a  contract 
with  a  broker  for  the  purchase  and  sale  of  stock  for  speculative 
purpose.     Such  contracts  are  ultra  vires.^^ 

15  Pierce  r.  Boston  Five  Cent  Sav.  (Md.)  299:  United  German  Bank  v. 

Bank,  129  :Mass.  425.  Katz,  .57  Md.   128:   Tishimingo  Sav. 

1'5  Ward    r.    Johnson,    5    111.    App.  Inst.    v.    Buchanan,    GO    ]\Iiss.    496; 

30.  AuU  Sav.  Bank  v.  Lexington,  74  Mo. 

n  Fifth  Ward  Sav.  Bank  r.  First  104;  Rome  Sav.  Bank  r.  Kramer,  32 

Xat.  Bank.  X.  J.  Law,  513.  Hun    (X.   Y.).   270.     Contra,   Pratt 

18  Pape  V.  Capitol  Bank,  20  Kan.  r.  Eaton,  79  X.  Y.  449. 

440,   27   Am.    Rep.    183:    Duncan    r.  i!>  Jemison   et  al.,  v.   C.   S.   Bank, 

Maryland   Sav.   Inst.,    10   Gill   &   J.  122  X.  Y.  135. 


492  Savixgs  Banks.  [ch.  xxxix^ 

"Where  the  bank's  charter  prohibits  loaning  upon  notes,  bilk 
of  exchange,  or  other  personal  property,  the  loan  is  not  void, 
only  voidable.^*^ 

§  308.  Insolvency  of  savings  banks  —  Appointment  of  a  re- 
ceiver. 

Where  a  savings  bank  is  declared  to  be  insolvent  a  receiver 
may  be  appointed,  nnless  the  law  of  the  State  otherwise  pro- 
vides. The  application  may  be  made  by  the  Attorney-General 
of  the  State  where  the  law  requires  him  to  act. 

In  California  it  is  the  duty  of  the  Attorney-General  on  a 
report  made  to  him  by  all  of  the  bank  commissioners  acting  as 
a  unit,  declaring  the  insolvency  of  a  bank,  to  immediately  apply 
to  the  court  for  a  receiver. 

The  application  where  the  law  does  not  require  the  Attorney- 
General  to  act  may  be  made  by  a  stockholder.^* 

"When  equity  courts  are  required  to  protect  the  interest  of 
depositors,  the  assets  of  the  bank  should  be  reduced  to  cash 
as  rapidly  as  possible  without  sacrifice  and  "distributed  among 
the  depositors  without  delay .^ 

A  receiver  may  not  be  appointed  where  the  trustees  by 
agreement  with  the  depositors  accept  a  stipulation  of  settle- 
ment and  they  proceed  to  act  upon  such  stipulation  'and  dis- 
tribute the  assets  of  the  bank.^^ 

§  309.  Riglits  of  depositors. 

"When  a  savings  bank  becomes  insolvent  in  some  of  the 
States,  it  is  held  that  the  depositors  are  general  creditors  like 
others.^^ 

In  Xew  Jersey  and  some  other  States  the  depositors  are  not 
paid  until  after  all  the  debts  for  management  are  discharged.^' 

^  310.  Depositor  denied  set-off. 

The  statute  may  provide  otherwise,  but  the  general  rule  is, 
that  a  general  depositor  in  a  savings  bank,  when  insolvent  and 

20Sistare,  r.  Best,  88  N.  Y.  527.  23  Reed   v.  Home   Sav.   Bank.   130 
2f'a  Gorman     r.      Guardian      Sav.  Mass.  44.3.  39  Am.  Rep.  408 ;   Cogs- 
Bank.  4  Mo.  App.  ISO.  -well   r.  Rockingham  Ten  Cent  Sav. 

21  Matter   of   Dime   Sav.   Inst.   29  Bank.  .59  X.  H.  4.3,  92  X.  Y.  7. 

X.  J.  Eq.  109.  24  Stockton     r.     Mechanics',     etc., 

22  Lewis   V.    Lvnn    Tnst.    for    Sav-       Sav.  Bank,  32  N.  J.  Eq.  165. 
ings,  148  Mass.  235. 


CH.  XXXIX.]  Banking.  493 

in  liquidation,  is  not  entitled  to  set  off  his  debt  due  the  bank 
against  the  deposit  due  him,  but  must  pay  his  debt  to  the  bank 
and  take  his  pro  rata  of  the  proceeds.^*" 

The  law  is  otherwise  where  the  deposit  is  a  special  deposit. 
A  special  deposit  made  to  be  withdrawn  upon  call  may  be  set 
off  against  the  depositor's  debt  to  the  bank."^ 

A  special  deposit  such  as  above  referred  to  by  the  court  is 
in  fact  a  commercial  deposit,  and  when  accepted  by  a  savings 
bank  and  allowed  to  be  withdrawn  upon  call,  the  depositor 
does  not  receive  interest  or  any  portion  of  the  dividends  which 
may  be  declared  by  the  bank,  but  in  lieu  thereof  receives 
the  privilege  of  drawing  against  his  account  with  notice. 
Upon  what  principle  of  law  or  equity  the  right  of  set-off  is 
allowed,  the  court  fails  to  state.  The  court  says  that  it  "  is 
a  claim  for  money  not  deposited  according  to  the  charter  of  the 
l>ank  nor  in  the  ordinary  course  of  business."  The  court  pro- 
ceeding, then  says:  "  The  charter  of  the  bank  gave  it  no  power 
to  receive  and  pay  out  money  on  call,"  and,  therefore,  because 
the  bank  officials  had  violated  the  charter  of  which  probably 
the  depositor  had  knowledge,  it  is  held  to  be  an  equitable 
reason  why  such  a  special  depositor  should  be  entitled  to  the 
right  of  set-off. 

It  is  again  stated  that  a  special  deposit  of  money  made  by  a 
person  in  a  bank  is  one  which  the  banker  must  keep  separate 
and  apart,  and  not  mingle  it  with  with  the  other  deposits  of  the 
bank.  Money  which  is  deposited  in  a  bank  subject  to  call  is 
not  a  special  deposit,  and  a  depositor  in  a  savings  bank  receiv- 
ing the  privilege  of  checking  against  the  same  at  any  time 
A\athout  notice,  in  case  of  failure  has  no  greater  rights  than 
any  other  depositor  in  the  bank.  If  the  bank  has  in  fact  re- 
ceived a  special  deposit  and  holds  it  in  possession  as  such,  it 
must  return  it  to  the  depositor ;  a  debt  owing  to  the  bank  by 
such  a  depositor  is  entitled  to  a  set-off. 

The  correct  rule  governing  the  right  of  depositors  in  purely 
mutual  savings  banks  to  set  off  their  liabilities  to  the  bank 
against  the  debt  or  deposit  due  them  by  the  bank,  is  presented 
5n  the  case  of  Stockton  v.  Mechanics',  etc..  Bank,  32  X.  J.  Eq. 
163. 

25PaATTer  v.  Hoag,  17  Wall.    (U.  3C  Hall  r.  Paris,  59  N.  H.  71. 

S.)    010." 


494  Savings  Banks.  [cii.  xxxix, 

"A  savings  bank  under  a  special  charter  was  authorized  to 
receive  and  invest  deposits  for  the  benefit  of  the  depositors^ 
the  income  or  profit  to  be  divided  among  them,  after  reason- 
able deductions  for  necessary  expenses,  the  principal  to  be  re- 
paid to  the  depositors  at  such  times  and  with  such  interest  and 
under  such  regulations  as  the  board  of  managers  should  from 
time  to  time  prescribe.  Under  their  regulations  they  not  only 
received  deposits,  participating  in  the  profits,  and  not  payable 
except  on  thirty  days'  notice,  but  also  another  kind  of  deposits 
(called  by  them  "  special  deposits  "),  which  were  not  to  partici- 
pate in  the  profits  and  were  to  be  repaid  (not  redelivered)  to 
the  depositors,  without  any  preliminary  notice.  Both  kind  of 
deposits  were  intermingled  in  the  funds  of  the  bank,  undis- 
tinguishable.  Under  insolvent  proceedings,  a  receiver  was  ap- 
pointed.    Held: 

'  '^  (1)  That  such  an  institution  is  a  mere  trustee  for  the  bene- 
fit of  the  depositors. 

"  (2)  That  a  depositor  who  borrowed  money  from  the  bank, 
secured  by  his  note  or  mortgage,  cannot  offset  his  debt  against 
the  amount  of  his  deposit  at  the  time  when  the  decree  of  in- 
solvency was  made. 

"  (3)  That  the  so-called  '  special '  depositors  are  not  entitled 
to  priority  in  payment  over  the  other  class  of  depositors. 

"  (4)  That  debts  and  expenses  contracted  by  the  bank  in 
carrying  on  its  ordinary  business  are  to  be  preferred. 

"  (5)  That  a  claim,  under  a  covenant  in  the  lease,  for  rent 
accruing  after  the  surrender  of  the  premises  to  the  lessor  by 
the  receiver,  cannot  be  maintained. 

"  (6)  That  money  paid  to  the  bank  in  exchange  for  its  check, 
given  for  the  accommodation  of  the  payee,  which  was  dis- 
honored, presumably  went  into  the  funds,  and  the  debt  should 
be  preferred. 

"  (7)  That  checks  given  to  depositors  on  account  of  deposits, 
are  not  to  be  preferred." 

If  the  depositor  has  deposited  a  special  fund  in  tlie  bank  and 
has  a  contract  witli  bank  to  the  effect,  that  he  may  at  any  time 
set  off  his  debt  against  his  deposit,  such  a  contract  is  lawful 
and  the  set-off,  therefore,  may  be  equitable,  but  the  deposit 
must  be  retained  by  the  bank  as  a  special  deposit,  and  a  special 


cii.  XXXIX.]  Bankixg.  495 

deposit  must  not  be  mingled  wnth  the  general  funds  of  the 
bank. 

AMien  a  bank  has  been  declared  insolvent  in  a  suit  at  the 
instance  of  the  bank  commissioners,  brought  bj  the  Attorney- 
General,  the  directors  may  levy  an  assessment  against  the  stock 
for  a  sufficient  sum  to  pay  the  indebtedness.'' 

27  Union  Sav.  Bank  of  San  Jose  r.  Leiter,  145  Cal.  696. 


CHAPTER  XL. 


LIENS  OF  BANKS. 

§  311.  General  and  special  liens. 

"A  lien  is  defined  to  be  a  legal  claim  or  charge  upon  real 
or  personal  property  for  a  satisfaction  of  some  debt  or  duty." 
Under  the  Code  of  California  a  banker  has  a  general  lien  de- 
pendent on  possession  upon  all  property  in  his  hands  belonging 
to  a  customer  for  the  balance  due  to  him  from  such  customer 
in  the  course  of  business.  It  is  a  well-established  principle 
that  a  bank  has  a  general  lien  on  all  of  the  moneys  and  funds 
which  have  been  placed  in  the  bank's  possession  and  it  may 
use  the  same  and  cancel  any  matured  debt  owing  by  the  debtor 
to  the  bank. 

The  court,  in  Muench  v.  Bank,  11  Mo.  App.  144,  says: 
"  The  general  lien  of  bankers  is  part  of  the  law  merchant. 
That  bankers  have  a  lien  on  all  money  and  funds  of  a  depositor 
in  their  possession  for  the  balance  of  the  general  account,  is 
undisputed.  A  banker's  lien  does  not  arise  on  securities  de- 
posited with  him  for  a  special  purpose;  otherwise,  we  have  no 
doubt  that  when  a  discount  has  been  made  by  the  bank  and 
the  note  is  matured  so  as  to  create  an  indebtedness  from  the 
depositor  of  the  bank,  all  funds  of  the  depositor  which  the 
bank  has  at  the  date  of  the  maturity  of  the  discounted  note, 
or  which  it  afterward  acquires  in  the  course  of  business  with 
him,  may  be  applied  to  the  discharge  of  his  indebtedness  to  the 
bank,  and  this  is  true  not  only  of  the  general  deposit  of  the 
customer,  but  the  rule  applies  to  any  commercial  paper  be- 
longing to  the  depositor  in  his  own  right  and  placed  by  him 
with  the  bank  for  collection." 

A  deposit  of  collateral  security  made  to  secure  a  particular 
debt,  cannot  be  held  by  the  bank  after  such  indebtedness  is 
paid  and  upon  demand  made  by  the  owner  must  be  returned  to 
him.  But  a  general  deposit  of  collateral  security  made  to 
secure  any  and  all  indebtedness  that  may  be  owing  by  the 
debtor,  can  be  held  until  all  the  debtor's  indebtedness  is  set- 
tled, and  the  lien  of  the  bank  can  be  enforced  against  said 

[496] 


cii.xL.]  '  Banking.  497 

property.  But  a  bank  has  no  lien  upon  the  deposit  of  a  cus- 
tomer for  an  indebtedness  owing  to  it  by  him  which  has  not 
matured,  though  he  be  insolvent.^ 

Stock  certificates. 

The  Supreme  Court  of  the  United  States  in  the  case  of 
Hammond  v.  Hastings,  134  U.  S.  401,  in  discussing  the  law  as 
enacted  bj  the  Legislature  in  the  State  of  Michigan,  section 
4143,  Howells'  Annotated  Statutes  (1st  ed.),  section  17  of  Act 
187  (1875),  which  reads:  "The  stock  of  every  such  corpora- 
tion shall  be  deemed  personal  property  and  be  transferred  only 
on  the  books  of  such  corporation  in  such  form  and  manner 
as  their  by-laws  shall  prescribe,  and  such  corporation  shall,  at 
all  times,  have  a  lien  upon  all  of  the  stock,  the  property  of  its 
members  invested  therein  for  all  debts  due  from  them  to  such 
corporation,"  says: 

"  The  general  act,  Howells  (1st  ed.),  §  4866,  provides  as  to 
all  corporations  that  a  transfer  of  stock  shall  not  be  valid 
except  as  between  the  parties,  unless  entered  on  the  books  of 
the  company  showing  the  names  of  the  parties  by,  and  to  whom 
transferred,  the  number  and  designation  of  shares  and  the  date 
of  the  transfer.  The  bank  was  ignorant  of  '  Sweet's  '  indebted- 
ness to  the  coi-poration  when  it  lent  its  money  on  the  security 
of  the  stock,  and  of  course  Hastings,  though  notified  thereof 
at  the  time  of  the  sale,  succeeded  to  all  of  the  rights  of  the 
bank.  On  these  facts  the  circuit  judge  held  that  the  purchaser 
took  the  stock  discharged  of  any  lien  and  submitted  to  the  jury 
only  the  question  of  the  value  of  the  stock.  This  having  been 
found  by  its  verdict,  judgment  was  entered  therefor  and  the 
corporation  now  alleges  error.  The  single  question  is,  whether 
the  corporation  had  a  lien  upon  the  stock  for  Sweet's  indebted- 
ness as  against  the  claims  of  the  hank  and  the  purchaser.  This 
question  must  he  ansivered  in  the  affirmative,  for  tlie  rule  is 
clear  and  unquestioned  that  where  by  general  law  a  lien  is  given 
to  a  corporation  upon  its  stock  for  the  indebtedness  of  the  stock- 
holder, it  is  valid  and  enforceable  against  all  the  world."^ 

1  Homer    v.   Xat.    Bank    of    Com-  .300 :   Brent  v.  Bank  of  Washington, 

merce    (Mo.   Sup.).   41   S.   W.   790:  10     Pet.     .59G:     National     Bank    r. 

Oibhons  r.  Hecox,  105  :Mich.  509,  63  Watsontown   Bank,    105   U.    S.   217, 

N.  W.  519.  221  ;  Rogers  r.  Huntington  Bank,  12 

2 Union  Bank  v.  Laird,  2  Wheat.  S.  k  R.    (Pa.)    77;    Sewall  i\  Lan- 

32 


498  LiE^^s  OF  Banks.  [cii.  xl. 

The  law  under  wliieli  this  corporation  (referring  to  the  case 
of  Hammond  v.  Hastings)  was  organized  was  a  general  law ; 
so  it  has  been  decided  by  the  Supreme  Court  of  Michigan,  in 
!N'ewberrv  v.  Detroit,  etc.,  Co.,  17  Mich.  141,  151,  where  it  is 
said:  ''  The  law  in  question  is  a  public  act,  and  all  are  charged 
with  knowledge  of  its  provisions."  This  construction  bv  the 
Supreme  Court  of  the  State  of  the  law  is  conclusive  in  this 
court,  as  well  as  elsewhere,  as  to  its  character.  The  law  in 
terms  provides  for  a  lien,  and  that  being  a  public  law,  all  are 
charged  with  knowledge  of  its  provisions.  Generally,  wherever 
paper  of  a  nature  similar  to  this  is  issued  under  authority 
granted  by  general  statute,  whoever  deals  with  that  paper  is 
charged  with  notice  of  all  limitations  and  burdens  attached  to 
it  by  such  statute.  And  this  is  true  whether  the  party  lives  in 
or  out  of  the  State  by  which  the  law  was  enacted. 

It  is  unnecessary  to  enter  upon  the  certificate  any  statment 
of  the  limitations  and  burdens  which  the  law  casts  upon  all 
such  paper,  and  the  omission  to  state  such  limitations  upon  the 
face  of  the  paper  is  not  a  waiver  by  the  corporation  of  the  bene- 
fits thereof. 

The  statute  of  the  United  States  provides,  section  5230,  that: 

"  For  any  deficiency  in  the  proceeds  of  all  of  the  bonds  of 
an  association  (bank)  to  reimburse  to  the  United  States  the 
amount  expended  in  paying  circulating  notes  of  the  association, 
the  United  States  shall  have  a  perynanent  lien  upon  all  of  its 
assets,  and  such  deficiency  shall  he  made  good  out  of  such  assets 
in  preference  to  any  and  all  other  claims  whatsoever,  except  the 
necessary  costs  and  expenses  of  administering  the  same." 

The  Supreme  Court  of  the  State  of  California,  in  the  case 
of  The  Anglo  Californian  Bank  (Limited),  Appellant,  v. 
Granger's  Bank  of  California,  Kespondent,  63  Cal.  350,  says: 

"  The  lien,  if  any,  must  have  been  created  by  the  by-law 
above  quoted,  and  it  seems  to  us  that  no  lien  could  be  created 
in  that  way  which  would  affect  a  hona  fide  purchaser  for  value 
without  notice  to  whom  the  stock  was  transferred  in  mode  pre- 
scribed by  the  Code.     We  think  that  the  by-law,  which  it  is 

caster  Bank,  17  S.  &  R.   (Pa.)   285;  merce,  14  Md.  271;  Hartford  Bank 

Presbyterian   Confiregation   v.   Carl-  ?\   Hartford  Ins.  Co.,  45  Conn.   22; 

isle    Bank,    5    Penn.    St.    345.    348;  Bishop  v.  Globe  Co.,  135  Mass.  132; 

Fanner's   Bank   r.   Iplebart,   0   Gill.  Bohnier  v.  City  Bank,  77  Va.  445. 
(Md.)    50;   Reese  v.  Bank  of  Com- 


cii.  XL.]  Baxkixg.  499 

claimed  gives  the  defendant  sncli  a  lien,  is  clearly  inconsistent 
with  the  provisions  of  section  324  of  the  Civil  Code  which  we 
Lave  quoted.  The  provision  that  '  tlie  transfer  is  not  valid  ex- 
cept between  the  parties  thereto  until  the  same  is  so  entered 
upon  the  hooks  of  the  corporation  as  to  show  the  names  of  the 
parties  hy  and  to  whom  transferred,  the  number  or  designation 
of  the  shares,  and  the  date  of  the  transfer'  does  not,  as  we  con- 
sider it,  justify  the  defendant  in  its  refusal  to  enter  upon  its 
books  the  transfer  from  Fowler  to  the  plaintiff  any  more  than 
it  would  in  the  absence  of  any  such  bydaw  as  the  one  upon 
which  the  defendant  relies  for  its  justification  in  this  case.  If 
there  was  a  valid  transfer  of  the  stock  from  Fowler  to  the 
plaintiff,  the  latter  had  a  right  to  have  it  transferred  on  the 
books  of  the  defendant.  The  defendant  might  make  bydaws 
regulating  the  transfer  of  stock,  but  it  could  not,  under  the 
power  to  regulate  the  transfer  of  stock,  create  a  secret  lien 
upon  it,  which  would  adhere  to  it  in  the  hands  of  a  bona  fide 
purchaser  for  value  and  without  notice." 

This  question  was  elaborately,  if  not  exhaustively,  discussed 
in  Bullard  v.  Bank,  18  Wall.'  589,  and  in  Driscoll  v.  West 
Bradley  &  C.  M.  Co.,  59  K  Y.  96,  and  the  conclusion  reached 
in  both  cases  was  that  a  corporation  could  not,  under  the  power 
to  make  bydaws  for  the  regulation  of  the  transfer  of  stock, 
create  or  declare  a  lien  upon  the  stock  by  by-law,  nor  refuse  to 
permit  a  transfer  until  the  indebtedness  of  the  stockholder  to 
the  company  be  paid. 

It  is  held  that  the  bank's  lien  is  not  only  effective  against  the 
debtor,  but  that  the  bank  may  pursue  the  property  in  the  hands 
of  his  assignee  for  creditors,  and  may  be  enforced  as  against 
such  assignee. 

"  Thus  a  bank  to  which  paper  was  indorsed  for  collection 
before  the  maker  thereof  assigned  for  the  benefit  of  creditors 
may  set  off  the  amount  of  the  paper  in  a  suit  against  it  by  the 
assignee  to  recover  the  maker's  deposit  in  the  bank."  ^ 

A  commercial  State  bank  can,  by  special  agreement,  unless 
prohibited  by  statute,  have  assigned  to  it  as  security  its  own 
stock,  and  it  may  purchase  the  same  at  a  sale  to  protect  the 
bank  from  loss.     It  may  then  sell  the  stock  purchased  at  such 

3  Seloner  on  Bank  Collections,  p.  42;  Penn.  Bank  V.  Farmers'  De- 
posit Xat.  Bank,  130  Pa.  8t.  209. 


600  Liens  of  Banks.  [ch.  xl, 

sale  and  take  the  purchasers'  note  with  the  stock  as  collateral 
security.^ 

A  national  bank  cannot,  either  bv  specific  provisions  or 
agreement  entered  into,  take  its  own  stock  as  security  for  a 
debt  contracted  bv  the  stockholders  with  the  bank,  but  as  the 
law  provides  no  penalty  for  its  violation  the  proceeding  can 
only  be  inquired  into  by  the  United  States. 

Bule  hetiveen  corespondent  and  initial  hanli. 

The  general  rule  is  that,  as  between  the  correspondent  hanh 
and  the  initial  hanh  where  there  have  been  for  several  years 
mutual  and  extensive  dealings  between  two  banks  and  an  ac- 
count current  kept  between  them  in  which  they  mutually  cred- 
ited each  other  with  the  proceeds  of  all  negotiable  paper 
transmitted  for  collection  when  received  and  accounts  were 
regularly  transmitted  from  the  one  to  the  other  and  settled  upon 
these  principles,  and  balances  remitted  ivhen  called  for  and  upon 
the  face  of  the  paper  transmitted,  it  always  appeared  to  be  the 
property  of  the  respective  banks,  and  the  collecting  bank  had 
no  notice  that  the  transmitting  bank  did  not  own  the  paper,  and 
such  paper  was  transmitted  by  each  of  the  two  banks  on  its  own 
account;  held,  there  is  a  lien  for  a  general  balance  of  account 
no  matter  who  may  be  the  real  owner  of  the  paper.^ 

But  the  general  rule  does  not  hold  in  the  absence  of  a 
previous  agreement  or  mutual  dealings  between  the  correspond- 
ent and  the  initial  bank.  The  court  says,  in  Millikin  v.  Shap- 
leigh,  3 G  Mo.  596: 

"  *  *  *  But  ivhere  there  is  no  such  mutual  arrangement 
or  previous  course  of  dealing  between  the  parties  whereby  it  is 
expressly  or  impliedly  understood  that  such  remittances  of 
paper  are  to  go  to  the  credit  of  the  previous  account  when  re- 
ceived and  no  advance  is  made  and  no  credit  is  given  on  the 
basis  of  the  particular  bill  or  on  the  faith  of  such  course  of 
dealing  or  such  remittances,  or  where  the  special  circumstances 
are  inconsistent  with  the  hypothesis  of  such  mutual  under- 
standing, and  the  one  bank  merely  bases  the  proceeds  of  pajjcr 

4  Union  Nat.  Bank  v.  Hunt,  7  Mo.  440.  The  President  and  Directors  of 
App.  42.  the  Metropolis,  Plaintiff  in  Error,  v. 

5  Carroll  v.  Exchange  Bank  of  The  President,  Directors,  etc.,  of  th« 
Wheeling,  30  W.  Va.  518,  4  S.  E.  New  England  Bunk,  G  How.  212. 


en.  XL,]  Bankixg.  501 

remitted  for  collection  to  the  credit  of  the  other  on  a  subsist- 
ing indebtedness  which  it  happens  at  the  time  to  have  standing 
against  the  other,  there  is  no  snch  lien  and  no  right  to  retain 
and  apply  the  money  collected  in  that  manner,  bnt  the  real 
owner  of  the  funds  may  maintain  an  action  to  recover  the 
amount." 

In  the  case  of  the  First  Xational  Bank  of  Clarion  v.  Gregg 
&  Co.,  79  Pa.  St.  384^  the  rule  as  stated  is  as  follows: 

"A  note  was  made  to  plaintiff's  order,  endorsed  by  him  and 
sent  through  the  house  of  Brady,  a  banker,  for  collection  by 
him,  endorsed  to  the  defendant,  a  bank,  for  collection  and 
credit.  Held,  that  Brady  by  the  endorsement  did  not  become 
the  o^\Tier  of  the  note  and  had  no  right  to  pledge  it,  or  direct 
its  proceeds  to  be  credited  to  him  in  payment  of  his  indebted- 
ness to  the  defendant." 

Mr.  Justice  Williams,  in  delivering  his  opinion,  says: 

"  Brady  &  Co.  did  not  become  the  owmers  of  the  note  by  the 
plaintiff's  endorsement  and  delivery  of  it  to  them  for  collection, 
and  they  had  no  right  to  pledge  it  or  direct  its  proceeds  to  be 
placed  to  their  credit  in  payment  of  their  indebtedness  to  the 
bank.  It  is  true  that  they  were  the  apparent  owners  of  the 
note,  and  in  the  absence  of  notice  of  the  plaintiff's  title  the 
bank  had  the  right  to  treat  them  as  the  real  owners.  If  it  had 
made  advances  or  given  new  credits  to  Brady  &  Co.,  on  the 
faith  of  the  note,  it  would  undoubtedly  be  entitled  to  retain 
the  amount  out  of  the  proceeds,  but  just  at  this  point  the 
defense  wholly  fails.  The  affidavit  of  the  cashier  does  not 
show  that  the  bank  made  any  advances  or  gave  any  new"  credits 
on  the  faith  of  the  note,  nor  does  it  show  that  it  incurred  any 
liability  or  did  anything  by  which  its  condition  is  worse  than 
it  could  have  been  if  it  had  not  received  the  note  for  collection 
and  credit,  or  that  it  will  suffer  any  loss  or  damage  if  the 
credit  is  not  allowed.  If  so,  the  bank  has  clearly  no  equity 
wdiich  entitles  it  to  withhold  the  proceeds  from  the  owners  of 
the  note." 

In  the  case  of  Lawrence  and  Another  v.  The  Stonington 
Bank,  6  Conn.  521,  the  court  holds  that: 

"  *  *  *  a  custom  among  banks  of  transmitting  bills  and 
notes  from  each  to  the  other  for  collection,  and  when  paid  of 
passing  the  avails  to  the  credit  of  the  bank  so  transmitting 


^>02  LiExs  OF  Banks.  [cii.  xl, 

tbem,  and  to  the  debt  of  the  bank  so  receiving  them,  cannot 
affect  the  ch^im  of  a  third  person  to  the  avails  of  a  bill  which  he 
has  committed  to  one  of  them  for  collection." 

The  court  in  the  above  case,  in  discussing  a  banker's  lien, 
says: 

"  In  Jourdaine  v.  Lefevre  et  al.,  1  Esp.  Rep.  66,  it  was  said 
Ly  Lord  Kenjon  that  a  banker  had  a  lien  on  a  note  paid  into 
his  house  and,  of  course,  a  right  to  retain  it  for  his  general 
balance.  The  doctrine  more  clearly  appears  from  the  case  of 
Davis  and  Al.  Bowsher,  5  Tenn.  Rep.  488:  'A  customer  lodges 
liills  of  exchange  in  the  hands  of  his  banker  generally,  and 
when  the  banker  advances  money  to  him  he  applies  it  to  the 
discount  of  such  of  the  bills  as  happen  to  be  nearest  in  value 
to  the  sum  advanced,  but  without  any  special  agreement  to  that 
effect.  This  does  not  invalidate  the  banker's  general  lien  upon 
all  of  the  other  bills  in  his  hands,  but  he  may  retain  them  in 
order  to  secure  the  payment  of  his  general  balance.' " 

A  bank  cannot  acquire  a  lien  against  a  specific  or  special 
deposit.^ 

A  bank  holding  securities  assigned  to  it  by  a  partnership 
cannot  in  any  event  apply  money  belonging  to  one  of  them, 
to  the  satisfaction  of  a  debt  due  by  the  other,  without  the  con- 
sent of  the  former.^ 

The  deposit  of  funds  in  the  name  of  a  person  as  trustee  can- 
not he  apportioned  or  applied  by  the  bank  to  the  payment  of 
liif-.  individual  indebtedness  to  the  bank.^ 

In  the  case  of  Hodgins  v.  Bank,  124  N.  C.  540,  the  rule  as 
to  the  right  of  the  bank  to  apply  the  deposits  of  a  surviving 
partner  to  cancel  the  debts  of  the  former  is  stated  as  follows: 

"A  bank  has  the  right  to  apply  the  debt  due  by  it  for  de- 
posits to  any  indebtedness  by  the  depositor  in  the  same  right 
to  the  bank,  provided  such  indebtedness  to  the  bank  has 
matured." 

6Fitzjjerald     v.    State    Bank,    64  Ferry  v.   Home   Savings   Bank,   114 

Minn.   4G9 ;    Bank   v.    Ins.    Co.,    104  Mich.   321. 

IT.    S.    54 ;    Judy    r.    Farmers'    and  » Bundy  r.  Town  of  Monticello,  84 

Traders'  Bank,  81  Mo.  404.  Ind.  119;"  National  Bank  r.  Ins.  Co., 

7  Bank  of  Lajirange  r.  Calter,  101  104    IT.    R.    ,54;    Clemer    r.    Drover.s' 

Oa.   1.34;   Dawson  et  al.  r.  Real  Es-  Xat.  Bank.  157  111.  206;  Preston  r. 

tate    Bank,    5    Pike     (Ark.),    283;  Prather,  137  U.  S.  604. 


CHAPTER  XLI. 


STATUTE  OF  LIMITATIONS. 

§  312.  Runs  against  checks,  when. 

In  the  absence  of  a  statute  of  a  State  declaring  that  the 
statute  of  limitations  shall  not  run  against  money  deposited 
in  the  bank,  the  rule  is  that  the  statute  begins  to  run  against 
the  liability  of  the  bank  from  the  time  a  demand  for  payment 
is  made.^ 

A  delay  to  call  for  a  deposit  for  a  period  of  six  years  from 
the  time  the  money  was  placed  in  the  bank  is  not  a  bar  to  a 
right  of  action  against  the  banker.^ 

Where  a  bank  holds  funds  of  a  depositor  subject  to  call,  the 
contract  is  one  to  pay  on  demand,  and  the  statute  does  not 
begin  to  run  until  demand.^ 

A  certification  of  a  check  by  the  bank  does  not  change  the 
rule.     The  statute  does  not  begin  to  run  until  after  demand. 

It  is  also  claimed  that  the  statute  does  not  begin  to  run 
until  demand  is  made  by  owner  of  bank  stock  for  dividends. 

§  313.  Runs  against  certificates  of  deposits,  when. 

A  certificate  of  deposit  is,  by  the  courts,  declared  to  be  in 
legal  efitect  a  promissory  note;  and  the  statute  of  limitations, 
if  such  is  the  law,  begins  to  run  immediately,  and  no  demand 
is  necessary. 

In  the  case  of  Mitchell  v.  Easton,  37  Minn.  335,  the  court 
says,  in  discussing  the  question  of  the  statute  of  limitations  in 
a  suit  brought  upon  an  instrument  designated  as  a  certificate 
of  deposit  which  is  in  the  words  and  figures  following: 

"  Mower  County  Bank,  Austin,  Minn.,  March  29,  1876. 
"  L.  S.  Mitchell,  Esq.,  has  deposited  in  this  bank  seven  hun- 
dred fifty  and  no-100  dollars,  payable  to  the  order  of  himself, 
in  current  bank  notes,  on  the  return  of  this  certificate  properly 
indorsed,  with  interest  at  the  rate  of  ten  per  cent,  per  annum. 

"  SMITH,  WILKIIn^S  &  EASTOX." 

1  39  Pa.  St.  92.  3  Starr  v.  Stiles,  19  Pac.  Rep.  225. 

2Girar(i   Bank   v.    Bank   of   Penn 
Township,  39  Pa.  St.  92. 

[503] 


504:  Statute  of  Limitations.  [cii.  xli, 

"  The  defendants  received  the  money  of  the  jDlaintiff,  and, 
by  the  instrument  sued  on,  promised  and  agreed  to  repay  it, 
with  interest,  and  by  placing  their  obligation  in  this  form  they 
manifest  an  intention  to  change  the  character  of  the  transaction 
from  that  of  an  ordinary  deposit  to  that  of  a  debt  or  loan 
evidenced  by  an  instrument  construed  to  be  a  promissory  note 
payable  on  demand.  If  the  parties  desired  to  place  any  other 
or  further  limitation  upon  the  rights  or  obligations  of  either, 
it  should  have  been  expressed  upon  the  face  of  the  instrument. 

"  Upon  the  question  under  discussion  it  is  admitted  that  the 
authorities  differ.  In  Xew  York  the  cases  indicate  much  con- 
flict of  opinion.  Some  of  them  hold  that  such  certificates  are 
promissory  notes;  others  mere  receipts  or  written  evidences  of 
a  deposit,  and  as  such  continuing  securities,  which,  though 
negotiable,  are  not  dishonored  until  after  an  actual  demand. 
See  Xational  Bank  of  Fort  Edward  v.  AVashington  County 
Bank,  5  Hun,  605.  But  if  they  are  promissory  notes  payable 
on  demand,  then,  under  the  statute  above  referred  to,  they 
would  be  dishonored  after  sixty  days.  But  this  could  not  con- 
sistently be  the  case  if  the  paper  was  not  due  until  an  actual 
demand.  But  it  is  manifestly  the  better  rule  in  practice  to 
hold  that  such  demands  become  stale  and  outlawed  unless  col- 
lected or  sued  within  six  years.  Brummagin  v.  Tallant,  29  Cal. 
503  (89  Am.  Dec.  61);  Tripp  v.  Curtenius,  36  Mich.  494;  Cur- 
ran  V.  Witter,  68  Wis.  16  (31  N.  W.  Kep.  705)." 

The  general  rule  is  that  a  certificate  of  deposit,  if  a  promis- 
sory note  and  payable  on  demand,  is  due  immediately  without 
any  actual  demand,  and  that  the  statute  begins  to  run  at  once.'* 

The  statute  begins  to  run  when  a  right  of  action  accrues.^ 

Where  the  courts  hold  that  a  certificate  of  deposit  is  not  in 
legal  effect  a  promissory  note,  the  certificate  becomes  due  (un- 
less a  date  is  fiixed)  from  the  date  of  demand,  and  the  statute 
does  not  begin  to  run  until  demand  is  made. 

The  Supreme  Court  of  the  State  of  Massachusetts,  in  the 
case  of  Shute  v.  Pacific  :N"at.  Bank,  136  Mass.  487,  holds  that 
a  certificate  of  deposit  issued  by  a  national  bank  is  not  a 

4  Brummagin   r.   Tallant,   29   Cal.       §  29;  Angell  on  Limitations.  §  59; 
503;    Cousins  v.   Partridge,   79   Cal.       Wood  on  Limitations,  §  124. 
228;    Story    on    Promissory    Notes,  5  Jones  r.  Nicholl,  82  Cal.  32. 


cii.  xLi.]  Banking.  505 

promissory  note  within  the  meaning  of  the  General  Statutes, 
chapter  53,  section  10. 

It  is  also  held  by  the  same  anthority,  that  a  certificate  of  de- 
posit is  not  due  until  a  demand  is  made  and  the  certificate  re- 
turned or  tendered.^ 

§  314.  Statute  runs  against  stockholder's  liability,  when. 

In  a  suit  by  a  receiver  of  an  insolvent  national  bank  to  col- 
lect an  assessment  authorized  by  the  Comptroller  of  the  Cur- 
rency, upon  the  stock  from  a  stockholder  who  has  made  a 
fraudulent  transfer  of  his  shares,  is  based  upon  the  statutory 
liability  of  the  stockholder,  and  the  statute  begins  to  run  from 
the  date  the  assessment  becomes  due. 

The  statute  begins  to  run  from  the  accrual  of  the  liability."^ 

When  a  bank  fails  and  its  assets  are  insufficient  to  pay  off 
all  of  its  liabilities,  the  stockholders  become  liable  for  such 
deficiency  to  the  extent  provided  (if  a  national  bank  by  the 
statute  of  the  United  States,  if  a  State  bank  by  the  statute  oi 
the  State),  and  no  limit  of  time  being  prescribed  by  the  Federal 
Statutes  within  which  an  action  must  be  brought  to  enforce  an 
assessment  against  a  stockholder,  such  an  action  is  governed, 
as  to  limitation,  by  the  statute  of  the  United  States. 

But  see  Aldrich  v.  Skinner,  98  Fed.  Rep.  345.  The  court 
here  holds  that  the  statute  of  the  State  where  the  action  is 
brought  governs. 

In  a  very  late  case  the  Supreme  Court  of  the  United  States 
has  decided  that  the  Statute  of  Limitations  of  a  State  is  no 
defense  to  an  action  brought  by  the  receiver  of  a  failed  na- 
tional bank  against  its  stockholders. 

Chief  Justice  McKenna,  in  rendering  the  opinion  of  the 
court  in  the  case  of  Rankin,  Receiver  of  the  Hutchinson  N^a- 
tional  Bank  v.  Edward  E.  Bartin, —  a  stockholder,  says: 

"  We  think  the  Kansas  Supreme  Court  overlooked  the  of- 
ficial character  and  power  of  the  Comptroller  of  the  Currency 
and  the  decisions  of  this  court  declaring  them.  A  national  bank 
is  an  instrumentality  of  the  United  States,  its  circulating  notes 

6  Bellows   Falls   Bank  v.  Rutland  7  Thompson  v.  German  Ins.  Co.,  77 

County  Bank,  40  Vt.  377 ;  Monger  i'.       Fed.  Rep.  258 ;  Godfrey  r.  Terry,  97 
Albany  City  Bank,  85  N.  Y.  580.  U.  S.  171. 


506  Statute  of  Limitatioxs.  [ch.  xli. 

are  guaranteed  bv  the  United  States,  and  if  the  United  States 
should  be  compelled  to  pay  them  the  United  States  has  a  para- 
mount lien  on  the  assets  of  the  bank  for  reimbursement.  The 
administration  of  the  bank's  assets  is,  therefore,  vested  in  the 
Comptroller  as  an  officer  of  the  United  States.  He  appoints 
the  receiver  and  directs  his  acts.  Individual  liability  of  a 
stockholder  can  only  be  enforced  by  his  order. 

''As  the  power  of  the  Comptroller  is  derived  from  a  statute 
of  the  United  States,  it  cannot  be  controlled  or  limited  by 
State  statutes." 

§  315.  When  State  statute  does  not  govern. 

In  actions  for  the  recovery  of  usurious  interest,  a  State 
statute  limiting  the  time  within  which  an  action  to  recover  ex- 
cessive interest  may  be  brought  does  not  apply.® 

In  the  State  of  California  it  is  held  in  the  case  of  Wells  v. 
Black,  that  the  Statute  of  Limitations  commences  to  run  against 
the  liability  of  the  stockholders  of  a  savings  bank  from  the 
time  when  the  debt  was  created  and  the  liability  incurred  upon 
the  acceptance  of  each  deposit,  and  at  the  expiration  of  three 
years  thereafter,  the  right  to  enforce  the  stockholder's  liability 
is  at  an  end. 

The  court  says: 

"  Since  the  relation  of  debtor  and  creditor  existed  between 
the  bank  and  its  depositors  it  follows  that  the  debt  was  created 
and  the  liability  incurred  at  the  time  of  the  acceptance  of  each 
deposit.  At  the  expiration  of  three  years  the  right  to  enforce 
the  stockholder's  liability  was  at  an  end.  (Code  Civ.  Proc, 
§  359;  Hunt  v.  Ward,' 99  CaL  612,  37  Am.  St.  Rep.  87; 
Bank  v.  Pacific  Coast  S.  S.  Co.,  103  Cal.  594.)  Whatever 
divergence  of  views  may  be  found  in  the  earlier  adjudication?, 
the  cases  above  cited  contain  the  last  expressions  of  the  court 
upon  the  question.  It  follows,  therefore,  that  plaintiff's  cause 
of  action  is  barred  as  to  all  deposits  made  more  than  three  years 
before  the  commencement  of  the  action. 

"  The  judgment  is  ordered  modified  to  conform  to  these 
views,  appellants  to  have  their  costs  upon  appeal." 

8  Lucas  r.  Government  Nat.  Bank  of  Pottsville,  1  N.  B.  C.  872. 


cii.  XLi.]  Banking.  507 

§  316.  Fraudulent  act  by  officer  of  bank  —  Statute  runs  when. 

Where  an  officer  of  a  bank  has  committed  a  fraudulent  act 
causing  loss  or  injury  to  the  bank,  which  act  is  unknown  to 
the  directors  of  the  bank,  in  an  action  brought  against  him 
(the  officer)  for  money  had  and  received,  the  Statute  of  Limi- 
tations does  not  begin  to  run  until  the  knowledge  of  the  act 
lias  been  discovered  by  the  directors.^ 

9  Atlantic  Nat.  Bank  v.  Nathaniel  Harris,  118  Mass.  147. 


CHAPTER  XLII. 


FORFEITURE  OF  BANK'S  FRANCHISE. 

§  317.  Acts  of  banks  which  may  forfeit  charter. 

The  Xational  Banking  Act,  section  5239,  Revised  Statute? 
of  the  United  States,  provides: 

'^  If  the  directors  of  any  national  banking  association  shall 
knowingly  A'iolate,  or  knowingly  pennit  any  of  the  officers, 
agents,  or  servants  of  the  association  to  violate,  any  of  the 
provisions  of  this  title,  all  the  rights,  privileges,  and  franchises 
of  the  association  shall  be  thereby  forfeited.  Such  violation 
shall,  however,  be  determined  and  adjudged  by  a  proper  cir- 
cuit, district  or  territorial  court  of  the  United  States,  in  a 
suit  brought  for  that  purpose  by  the  Comptroller  of  the  Cur- 
rency, in  his  own  name,  before  the  association  shall  be  declared 
dissolved." 

§  318.  Acts  constituting  liability. 

A  franchise  of  a  national  bank  is  liable  to  forfeiture  when 
the  acts  are  committed  by  the  directors  knowingly,  and  the 
information  brought  must  charge  that  the  act  was  done  by  the 
directors^  or  that  they  knowingly  permitted  it  to  be  done.^ 

If  the  action  is  not  brought  within  a  period  of  five  years  it 
is  barred  by  the  Statute  of  Limitations.^ 

By  the  provisions  of  the  foregoing  statute  the  Comptroller 
of  the  Currency  is  given  discretionary  power  to  bring  the  ac- 
tion. The  authority  is  vested  in  him.  'No  other  person  can 
complain  or  institute  proceedings. 

The  statute  in  some  of  the  States  has  enacted  laws  declar- 
ing that  if  a  bank  shall  violate  any  of  the  laws  of  the  State  or 
its  charter  by  doing  acts  in  excess  of  its  powers,  or  failing  to 
comply  with  express  provisions  of  the  law  directing  it  to  per- 
form certain  acts,  its  charter  may  be  forfeited  in  a  suit  insti- 
tuted by  the  Attorney-General  of  the  State. 

The  charter  of  a  State  corporation,  whether  obtained  under 

1  Trenliolm.     Comptroller    of    the  2  Welles   r.   Graves^   41   Fed.   Rep, 

Currency,  r.  Commercial  Xat.  Bank       459. 
of  Dubuque,  38  Fed.  Rep.  323. 

[508] 


cii.xLii.]  Bankixg.  509 

a  special  or  general  law,  cannot  be  forfeited  only  by  an  ac- 
tion brought  under  the  direction  and  authority  of  the  Attorney- 
General  of  the  State.  A  complaint  may  be  laid  l)y  any  indi- 
vidual before  such  officer,  but  the  power  to  bring  the  action 
is  discretionary  and  rests  with  him.  But  where  a  public  officer, 
who  is  empowered  by  law  to  perform  an  act  which  concerns 
the  public,  and  affects  the  public  interest,  the  execution  of  the 
power  where  the  officer  fails  to  perform  his  duty  may  be  en- 
forced by  writ  of  mandate. 

In  the  State  of  California  the  writ  of  mandate  is  issued 
only  to  enforce  an  act  especially  enjoined  by  law  as  a  duty  re- 
sulting from  an  office,  trust,  or  station.^ 

Unintentional  acts  committed  by  the  officers  or  directors  of 
a  bank,  though  violations  of  the  law  and  the  charter  of  the 
bank,  but  which  do  not  result  in  serious  harm  to  the  stockhold- 
ers or  depositors,  should  not  be  urged  and  is  not  sufficient 
grounds  for  declaring  a  forfeiture  of  the  bank's  charter.  But 
acts  which  are  knowingly  committed  by  the  directors,  or  with 
their  knowledge  are  committed  by  any  of  the  officers  or  agents 
of  the  bank,  with  a  purpose  to  avoid  or  violate  a  law,  and 
which,  when  done,  cause  loss  o,r  injury  to  any  person  dealing 
with  the  bank,  are  acts  which,  when  proven,  present  sufficient 
grounds  and  authority  for  declaring  the  charter  forfeited. 

|<  319.  Failure  to  comply  with  statutory  provisions. —  Grounds 
for  forfeiture. 

Where  the  law  requires  that  a  banking  corporation  shall 
have  a  capital  stock,  a  portion  of  which  may  be  paid  up  when 
the  charter  is  granted,  the  remainder  to  be  paid  within  a  time 
fixed  by  the  statute,  upon  a  failure  to  pay  in  the  remainder 
at  such  time,  works  a  forfeiture  of  the  charter;  and  in  such 
cases,  it  at  once  becomes  the  duty  of  the  Attorney-G-eneral  of 
the  State  to  institute  an  action  for  that  purpose. 

The  failure  of  the  corporation  in  the  performance  of  an  act 
required  by  law  to  be  performed  at  a  certain  time,  cannot  be 
extended. 

§  320.  Nonuser  of  charter. 

Where  the  statute  provides  that  a  corporation  shall  organize 
within   a  certain  period  of   time,   and   shall  perform   certain 

■".Price    V.   Riverside   L.   &    I.    Co..   56   Cal.   431;    Priet  v.   Reis,   93   Cal. 
85;  Code  Civ.  Proc.   (Cal.),  §   1085. 


510  Forfeiture  OF  BA^'K's  Franchise.        [cii.  xlii. 

other  acts  at  times  fixed  by  the  law,  such  as  the  election  of  a 
board. of  directors,  or  if  after  its  organization,  and  commence- 
ment of  its  business,  it  shall  lose  or  dispose  of,  all  of  its  prop- 
erty, and  shall  fail  for  a  period  fixed  by  the  statute  to  trans- 
act in  regidar  order,  the  business  of  said  corporation,  its  cor- 
porate powers  shall  cease  and  the  corporation  may  be  dissolved 
at  the  instance  of  a  creditor  at  the  suit  of  the  State  on  the  in- 
formation of  the  Attorney-General.* 

It  is  held  in  the  case  of  the  People  of  the  State  of  X.  Y.  v. 
The  President,  Directors,  etc.,  of  the  Bank  of  Hudson,  6 
Cow.  (X.  Y.)  216,  that  an  information  in  the  nature  of  a 
quo  ivarranto  against  an  incorporated  company,  seeking  to  de- 
prive it  of  its  franchise,  on  the  ground  of  forfeiture  by  non- 
user,  may  be  against  the  company  in  its  corporate  name.  The 
judgment  is  a  judgment  of  seizure,  and  the  court  holds  in  this 
case  that  the  corporate  rights  may  be  forfeited  by  a  nonuser 
or  misuser.  Suffering  an  act  to  be  done,  which  destroys  the 
end  and  object  for  which  a  corporation  was  instituted,  the 
court  holds  is  equivalent  to  a  surrender  of  its  coi*porate  rights^ 
as  where  an  incorporated  bank  becomes  involvent,  and  assigns 
so  much  of  its  property  to  trustees,  for  the  purpose  of  paying 
its  debts  as  to  prevent  its  resumption  of  banking  business. 

§321.  Willful  violation  of  law  or  bank's  charter  cause  for  for- 
feiture. 

Any  willful  violation  of  law,  the  creating  of  a  debt  in  ex- 
cess of  the  amount  provided  by  statute,  paying  dividends  out 
of  the  capital  stock,  failing  to  comply  with  the  law,  which  re- 
quires the  bank  to  make  official  reports  to  the  proper  authority 
of  the  State  or  knowingly  making  false  reports,  are  such  of- 
fenses as  would  justify  an  action  by  the  proper  authority  to 
forfeit  the  bank's  charter. 

In  the  case  of  People  v.  Oakland  County  Bank,  1  Doug. 
(Mich.)  282,  where  the  bank  under  the  provisions  of  the  law 
and  its  charter  is  located  in  one  county,  in  the  absence  of  a 
statute  authorizing  it  to  establish  an  agency  in  another  county, 
and  where  it  establishes  such  an  agency,  receives  deposits,  and 
buys  and  sells  exchange,   held   by  the  court  that  it  thereby 

4  Civ.  Code  of  Cal.,  §  358. 


Cii.  xLii.]  Banking.  511 

violates  its  charter.     But  the  court,  in  discussing  the  facts  and 
the  question  presented  in  this  case,  says: 

"  In  view  of  all  the  circumstances  disclosed  in  the  case  made, 
seeing  that  the  agency  in  question  was  probably  established 
without  any  deliberate  intention  to  violate  the  law  and  that 
the  same  has  been  discontinued,  we  shall  not  feel  disposed,  as  at 
present  advised,  to  declare  judgment  of  forfeiture  against  the 
defendants,  but  in  the  exercise  of  that  broad  discretion  with 
which  we  are  clothed,  to  adapt  the  judgment  to  the  circum- 
stances bf  the  case  ;  admonishing  those  interested  in  the  bank  to 
see  to  it,  that  in  the  meantime,  and  for  all  time  to  come,  they 
so  conduct  the  affairs  of  the  institution  as  not  to  render  them- 
selves obnoxious  to  legal  proceedings.  The  public  demand  of 
us  and  of  all  concerned  in  the  administration  of  the  law,  the 
greatest  vigilance  in  detecting  and  inmishing  in  the  most  ex- 
emplary manner  those  who  can  and  do  wield  so  much  power, 
when  that  power  is  so  exerted  as  to  be  productive  of  evil  in- 
stead of  good.  And,  while  the  judgment  in  this  case  may  not 
deprive  the  defendants  of  important  privileges,  a  repetition  of 
the  offense  will  be  visited  with  the  severest  penalties  of  the 
law.^' 

The  court  very  discreetly  in  this  case  looked  into  the  motive 
and  intention  of  the  directors  of  the  bank,  and  when  it  found 
that  there  was  no  willful  violation  of  the  law,  it  withheld  its 
power  of  punishment. 

In  a  very  early  case  reported  in  5  Ohio  St.,  the  court  held 
that  it  was  in  violation  of  the  act  which  was  passed  by  the 
Legislature  to  incorporate  the  State  bank  of  Ohio,  etc.,  for  one 
of  the  independent  banks  chartered  by  the  original  bank,  to  • 
make  loans  to  a  director  before  the  adoption  by  the  stock- 
holders of  by-laws  to  regulate  the  liabilities  of  directors,  and 
that  such  violation  was  a  cause  for  forfeiture  of  the  bank's 
charter.^ 

§  322.  Taking  usurious  interest  held  to  be  a  violation  of  charter. 

In  the  case  of  Fleckner  v.  United  States  Bank,  8  Wheat. 
338,  the  court  holds,  that  the  statute  incorporating  the  bank 
of  the  United  States  does  not  avoid  securities  on  whicli  usurious 

5  The   state    ex    rel.    the    Attorney-General    v.    Seneca  County  Bank,  5 
Ohio  St.  170. 


512  FORFEITUKE  OF  BaNk's  FRANCHISE.  [CII.  XLII. 

interest  may  have  been  taken,  and  the  usury  cannot  be  set  up 
as  a  defense  to  a  note  on  which  it  is  taken,  it  is  merely  a  vio- 
lation of  the  charter,  for  which  a  remedy  may  be  applied  by 
the  Government, 

§  323.  Bank  may  be  indicted  for  taking  usurious  interest. 

In  the  case  of  State  v.  First  Xational  Bank  of  Clarke,  51 
]Sr.  W.  Rep.  587,  it  is  held,  that  a  national  bank  may  be  in- 
dicted by  the  State  for  taking  usurious  interest,  also  that  the 
State  law  which  makes  the  taking  of  illegal  interest  a"  misde- 
meanor, and  in  case  of  a  corporation  punishable  by  the  im- 
posing of  a  fine,  is  not  necessarily  an  interference  with  the 
proper  discharge  of  the  banks'  duties  to  the  Government  as 
will  make  such  requirement  invalid. 

Where  the  statute  of  a  State  prescribes  that  all  the  capital 
stock  of  a  coi-jDoration  shall  be  subscribed,  a  bank  has  no  au- 
thority to  commence  doing  business  until  said  stock  has  all  been 
subscribed.  And  the  State  may  bring  an  action  to  forfeit  a 
charter  Avhere  the  corporation  commences  business  before  the 
full  capital  stock  is  subscribed.^ 

§  324.  Directors  embezzling  funds  of  bank  —  Mismanagement. 

In  the  case  of  the  Bank  Commissioners  v.  Rhode  Island 
Central  Bank,  5  R.  I.  12,  where  the  commissioners  brought 
an  action  to  enjoin  the  bank  from  further  doing  business  on 
the  ground  averred  in  the  application,  that  the  bank  ''  is  so 
managing  its  concerns  that  the  public  or  those  having  funds 
in  its  custody  are  in  danger  of  being  defrauded  thereby."  The 
court  upon  the  hearing  of  the  case  found  that  there  was  gross 
and  illegal  management  and  danger  of  fraud  growing  out  of 
such  mismanagement,  and  it,  therefore,  entered  a  decree  ap- 
pointing a  receiver  and  perpetually  enjoined  the  bank  from 
further  exercising  the  powers  and  franchises  conferred  by  its 
charter. 

§  325.  Wrongful  act  of  a  single  director. 

The  wrongful  act  of  a  single  director  or  officer  of  the  bank 
does  not  constitute  an  offense  upon  which  an  application  will 
lie  upon  the  part  of  the  State. 

e People   v.   Nat.   Sav.    Bank,    129    III.  CIS,   11   N.  E.   170. 


CH, 


xLii.]  Banking.  513 


But  where  the  board  of  directors  sanction  and  have  knowl- 
edge of  the  facts  of  an  officer  or  a  director,  which  are  in  vio- 
lation of  law,  it  is  imputed  to  and  becomes  the  act  of  the  bank. 

§  326.  Bank  doing  business  not  authorized. 

A  bank  incorporated  to  conduct  a  commercial  banking  busi- 
ness is  restricted  by  the  law  to  that  class  of  business  and  cannot 
conduct  a  savings  bank  business,  or  a  mercantile  business,  or  a 
real  estate  business.  Likewise  a  savings  bank  incorporated  for 
the  single  purpose  of  conducting  a  savings  bank  business,  with 
no  other  power  provided  for  by  its  charter,  cannot  conduct  a 
commercial  banking  business  or  buy  and  sell  commercial  paper. 
It  is  confined  by  the  law  in  the  conduct  of  its  business  to  the 
purpose  for  which  it  is  incorporated.  And  a  corporation  that 
conducts  a  business  not  authorized,  its  charter  may  be  revoked.'^ 

AYhere  the  statute  requires  that  a  certain  number  of  persons 
must  sign  and  acknowledge  the  articles  of  incorporation,  and 
wdiere  a  corporation  attempts  to  do  business,  not  having  com- 
plied with  the  law,  the  State  may  forfeit  its  charter.® 

§  327.  Directors  liable  for  losses  resulting  from  violation  of  law. 

The  directors  of  a  national  bank  are  liable  in  an  action  for 
damages  on  account  of  their  personal  acts,  resulting  in  a  vio- 
lation of  a  law,  and  a  suit  may  be  brought,  though  the  Comp- 
troller of  the  Currency  has  not  procured  a  forfeiture  of  the 
charter.^ 

But  where  a  receiver  has  been  appointed  to  take  charge  of 
the  affairs  of  the  bank,  it  is  held  that  the  action  should  be 
brought  by  him.^° 

Where  the  receiver  neglects  or  refuses  to  bring  an  action 
against  such  directors  it  may  be  brought  by  a  shareholder." 

T  The  People  v.  Utica  Ins.  Co.,  15  if>  Bailey  r.  Mosher,  63  Fed.  Rep. 

Johns.  357.  488. 

8  People  V.  Montecito  Water  Co.,  n  Brinkerhoif  v.  Bostwick,  88 
97  Cal.  276.  N.  Y.  52. 

9  Stevens    v.    Overstolz,    43    Fed. 
Rep.  465. 

33 


CHAPTER  XLIII. 


INSOLVENCY. 
§  328.  Insolvency  defined. 

'*  Insolvency  means,  simple  inability  to  pay,  as  debts  should 
become  payable,  whereby  the  debtor's  business  ^vould  be  broken 
up." 

The  deposits  in  a  commercial  bank  are  held  to  be  debts  due 
by  the  bank  and  are  payable  upon  demand.  Therefore,  under 
the  above  definition,  any  commercial  banking  corporation  upon 
failure  to  pay  a  deposit  upon  demand  made  upon  it,  would  be 
declared  insolvent. 

The  general  rule  is  laid  down  that  a  bank  is  insolvent  when 
unable  to  meet  its  liabilities  as  they  become  due  in  the  ordinary 
course  of  business,  and  when  it  cannot  pay  its  deposits  on  de- 
mand in  accordance  with  its  promise. 

The  rule  is  supported  and  held  to  be  the  law  by  many  of  the 
States. 

In  Illinois,  the  court  holds  '^  insolvency,  as  applied  to  a  per- 
son, firm,  or  corporation,  engaged  in  trade,  is  its  inability  to 
pay  debts  as  they  fall  due  in  the  usual  course  of  business."  ^ 

In  Indiana,  the  court  in  its  construction  of  a  statute,  which 
makes  it  embezzlement  for  a  banker  to  receive  a  deposit  when 
insolvent  from  anyone  not  indebted  to  the  bank,  whereby  the 
deposit  so  made  shall  be  lost  to  the  depositor,  says: 

"  When  a  deposit  of  money  is  made,  the  banker  in  con- 
templation of  law,  has  money  on  hand  to  the  full  amount  of 
the  sum  deposited,  ready  to  deliver  when  called  for,  and  his 
contract  ^\'ith  the  depositor  is  to  refund  that  same  amount  on 
demand.  When  it  is  not  paid  back  on  demand,  as  contemplated 
by  the  agreement  between  the  banker  and  the  depositor  and 
this  because  of  the  insolvency  of  the  banker,  and  his  conse- 
quent inability  to  refund  the  amount  of  the  sum  deposited  then, 
within  the  true  intent  and  meaning  of  this  statute,  which  is 
entitled,  An  Act  for  the  protection  of  bank  depositors,  the 
deposits  so  made,  or  in  other  Avords  ot  the  statute,  the  sum 

1  Atwater  v.  American  Express  Bank,  152  111.  605. 
[514] 


CH.  xLiii.]  Banking.  515 

fraudulently  taken,  is  lost  to  the  depositor.  The  crime  created 
bv  the  statute  is  consummated  "when  the  insolvent  banker 
fraudulently  receives  the  deposit,  for  the  statute  declares  that 
such  banker  so  receiving  such  deposit  shall  be  deemed  guilty 
of  the  embezzlement  of  the  sum  so  fraudulently  taken.'' 

In  Xew  York,  the  court  in  the  case  of  Levingston  v.  The 
Bank  of  New  York,  26  Barb.  305,  says: 

^'  The  bank  we  are  told  is  insolvent,  but  how  is  that  shown? 
The  plaintiffs'  '  information  and  belief '  is  surely  no  evidence, 
especially  when  in  direct  contradiction  to  the  regular  official 
reports  of  the  bank,  which  being  made  under  oath  and  pub- 
lished by  express  direction  of  law  are,  it  is  presumed,  entitled 
to  at  least  as  much  weight,  judicially,  as  the  unkno\\Ti  and 
unsworn  informant  of  the  plaintiff. 

*'  We  are  left  then  to  the  mere  legal  inference  of  insolvency, 
resulting  from  the  suspension  of  specie  payments  by  a  bank 
of  issue. 

"  Is  such  the  necessary  inference  from  suspension,  no  mat- 
ter what  the  bank's  assets  may  amount  to,  in  cases  where  sus- 
pension is  general  and  nearly  universal  throughout  the  State 
and  every  other  section  of  the  Union  ?  It  seems  to  me  that  it 
is  not.  The  statute  of  1849,  which  being  subsequent  in  time 
and  especially  directed  to  the  case  of  banks  of  issue  and  cover- 
ing precisely  the  same  ground,  would  seem  to  supersede  on 
these  points  the  older  enactments.  This  statute  provides  that, 
upon  proof  by  the  abortive  return  of  an  execution  or  by  other 
satisfactory  evidence  before  it  is  returned,  that  an  execution 
for  '  any  debt  or  liability  exceeding  $100  '  cannot  be  satisfied 
out  of  any  property  of  the  bank  thus  sued,  the  judge  '  shall 
at  once  make  an  order  declaring  the  insolvency  of  such  cor- 
poration or  association ;  '  to  be  followed,  of  course,  by  the 
appointment  of  a  receiver  to  wind  up  its  business.  Under  an- 
other section,  however,  a  creditor  without  waiting  the  first 
twenty  days  or  the  subsequent  sixty  days,  if  his  demand  ex- 
ceeds $100,  may  at  any  time  after  ten  days  from  the  refusal 
of  payment,  apply  for  an  order  enjoining  the  bank  and  declar- 
ing it  insolvent,  and  on  such  application  the  judge,  '  if  in  his 
opinion  on  the  facts  presented  it  be  expedient,  in  order  to 
prevent  fraud  or  injustice,'  may  grant  an  order  for  a  tem- 
porary injunction.     After  which,  on  hearing  of  the  parties  on 


516  IXSOLVEXCY.  [CH.  XLIII. 

short  notice,  he  shall  determine  whether  the  bank  be  '  clearly 
solvent  or  other\\ase.'  And  even  if  he  determine  it  be  clearly 
solvent,  he  is  required  to  continue  the  temporary  injunction, 
if  one  has  been  granted,  until  full  payment  of  the  debts  and 
costs.  But  if  he  determine  that  it  is  '  not  clearly  solvent,'  he 
must  not  only  continue  the  injunction,  but  appoint  a  receiver. 

"  Eeading  these  provisions,  can  anyone  say  that,  by  a  true, 
interpretation  of  the  law  of  M-hicli  they  form  a  part,  the 
mere  suspension  of  specie  payments  of  itself  and  by  itself, 
settles  the  question  of  insolvency  ?  If  so,  why  require  under 
one  section  the  issuing  of  an  execution  and  proof  of  inability 
to  satisfy  it,  and  under  another,  first  a  delay  of  at  least  ten 
days,  and  then  a  hearing  on  further  notice  and  an  examina- 
tion of  the  '  officers  '  books,  papers,  accounts,  assets,  and  ef- 
fects ? '  Banks  of  issue  in  this  State  are  the  creatures  of  the 
law.  The  same  law  assumes  that  while  accommodating  the 
public  they  will  yield  an  income  to  the  stockholders ;  and  how 
is  such  income  to  be  realized  unless  they  are  allowed  to  loan, 
not  only  their  capital,  but  a  portion  at  least  of  their  deposits, 
and  that  too,  not  returnable  on  demand,  but  on  time  ?  It  as- 
sumes, therefore,  in  the  very  organization  of  such  institutions, 
that  in  case  of  a  panic  or  sudden  rush,  the  banks,  although 
amply  able  and  clearly  solvent,  may  not  have  specie  enough 
o^li  hand  immediately  to  satisfy  all  claims.  Hence  the  Act  of 
1849,  instead  of  authorizing  a  permanent  injunction  upon  a 
mere  refusal  to  pay  in  specie,  expressly  requires  further  '  proof 
satisfactory  to  a  justice  of  the  Supreme  Court,'  that  the  demand 
of  the  plaintiff  '  cannot  be  satisfied  out  of  any  property  of  the 
defendant,'  or  that  after  a  full  hearing  of  the  parties,  it  shall 
appear,  and  be  so  determined,  that  the  institution  is  '  not  clearly 
solvent.' 

"  In  the  present  case  it  is  now  admitted  that  the  bank  has 
property  not  only  sufficient,  but  in  every  respect  more  than 
sufficient  to  satisfy  all  demands.  Within  the  meaning  of  the 
statute,  therefore,  it  is  '  clearly  solvent,'  and,  of  course,  not  a 
subject  for  the  extraordinary  decree  prayed  for  in  the  com- 
plaint. For  that  reason,  as  well  as  for  the  reason  that  no 
'  fraud  or  injustice  '  is  alleged  or  pretended,  it  is,  in  my  '  opin- 
ion, on  the  facts  presented,'  not  only  '  not  expedient,'  but  on 
the  contrary  hightly  inexpedient,  to  grant  a  '  temporary  in- 


CH.  XLiii.]  Banking.  517 

jimction,'  or  an  order  to  show  cause  why  such  an  injunction 
should  not  be  issued." 

The  more  liberal  rule  and  one  which  in  justice  should  be 
applied  to  all  debtors  and  particularly  to  a  banking  corpora- 
tion, is  that  a  bank  is  solvent  when  it  possesses  sufficient  solvent 
assets  to  pay  all  its  liabilities  within  a  reasonable  time. 

Upon  a  construction  of  the  statute  and  Constitution  of  the 
State  of  Missouri,  rendered  by  the  Supreme  Court  of  the 
United  States,  in  the  case  of  Dodge  v.  Masten,  the  court  in 
defining  the  word  ''  solvent  "  and  the  phrase  "  in  failing  cir- 
cumstances," says: 

"  I  will  proceed  next  to  define  the  meaning  of  the  word 
'  solvent '  and  the  phrase  '  in  failing  circumstances,'  used  in 
the  statutes  and  Constitution.  In  the  ordinary  acceptation  of 
the  term  '  insolvent '  when  applied  to  a  bank,  means  inability 
to  meet  liabilities  in  the  usual  course  of  business.  But  a  bank 
may  be  solvent  and  yet,  from  temporary  causes,  over  which 
its  officers  have  no  control,  suspend  until  these  causes  can  be 
overcome.  But  they  must  be  causes  for  which  prudence  and 
foresight  cannot  provide  or  over  which  the  bank  or  its  officers 
had  no  control  or  could  have  none.  Such  causes  when  they  do 
occur  are  usually  soon  overcome.  The  bank  again  takes  up 
its  business  and  proceeds  with  it  in  the  usual  way.  The  failure 
of  the  First  Xational  Bank  of  Kansas  City,  Missouri,  on  the 
29th  of  January,  1878,  would  not  have  been  a  good  cause 
for  suspension,  for  that  could  have  been,  and  as  we  have  seen, 
was  overcome  by  means,  however,  which  may  aid  you  in  de- 
termining the  solvency  of  the  Mastin  Bank  at  the  time  of  its 
failure.  As  much  of  what  I  shall  say  upon  the  phrase  '  in  fail- 
ing circumstances '  applies  also  to  solvency  and  insolvency  of 
a  bank,  I  pass  to  this  branch  of  the  case  with  the  declaration 
that  a  bank  is  solvent,  within  the  meaning  of  the  Constitution 
and  statutes  we  are  considering,  when  it  possesses  sufficient  of 
assets  to  pay  within  a  reasonable  time  all  its  liabilities  through 
its  own  agencies,  and  is  insolvent  when  from  the  uncertainty 
of  being  able  to  realize  on  its  assets,  in  a  reasonable  time,  a 
sufficient  amount  to  meet  its  liabilities,  and,  therefore,  makes 
an  assignment  by  which  the  control  of  its  affairs  and  property 
passes  out  of  its  hands.  The  phrase  '  in  failing  circumstances,' 
used  in  the  Constitution  and  statutes,  when  applied  to  a  bank, 


518  Insolvency.  [cii.  xlih. 

must  be  taken  to  mean  a  state  of  uncertainty,  whether  the 
bank  will  be  able  to  sustain  itself,  depending  on  favorable  or 
unfavorable  contingencies,  which  in  the  course  of  business 
may  occur  and  over  which  its  officers  have  no  control.  Thus, 
for  instance,  an  individual  may  be  said  to  be  in  failing  circum- 
stances when  he  is  put  to  unusual  shifts  to  meet  his  liabilities, 
such  as  borrowing  money  at  unusual  rates  of  interest,  makes 
sacrifice  in  the  disposition  of  his  property,  which  he  would  not 
do  but  for  his  condition.  Such  a  condition  of  things  may  exist 
regarding  a  bank,  and  when  this  is  the  case,  a  bank,  like  an 
individual,  may  be  said  to  be  in  failing  condition.  The  funds 
of  banks  are  supposed  to  be  ready  at  hand  to  meet  the  wants 
of  commercial,  trading,  and  manufacturing  communities  in 
which  they  are  located.  Anything  interfering  with  the  avail- 
ability of  its  funds,  such  as  the  carrying  of  large  debts  upon 
which  nothing  can  be  realized,  except  after  long  delays,  in- 
vestments in  real  estate  which  it  may  take  time  to  turn  into 
current  funds  —  and  all  of  these  things  when  they  occur,  may 
or  may  not  tend  to  show  whether  a  bank  is  in  failing  circum- 
stances." 

In  California,  the  Civil  Code  provides  that  "  a  debtor  is 
insolvent,  within  the  meaning  of  this  title,  when  he  is  unable 
to  pay  his  debts  from  his  own  means  as  they  become  due." 

The  Supreme  Court  of  the  State  of  California  in  the  case  of 
Sacry  v.  Lobree,  8-i  Cal.  41,  in  discussing  the  meaning  and 
definition  of  an  insolvent  under  this  statute,  says  (quoting  the 
testimony  of  Lobree,  the  defendant) :  "  '  1  think  the  account  of 
]\ruri)hy,  Grant  ct  Co.,  held  by  Crawford  &  Tabor,  was  $160. 
I  was  owing  them  at  the  time.  Their  debt  was  then  due.  I 
could  have  paid  them  in  a  few  days.  I  was  not  able  then  to 
pay  it.  I  can't  say  whether  I  owed  any  other  creditors, 
whom  I  was  unable  to  pay  as  their  accounts  became  due,  or 
not.  *  *  *  I  did  not  pay  my  bills  as  they  became  due, 
because  I  did  not  have  the  money.  I  had  no  bank  account. 
I  was  attached  at  9.30  o'clock  Saturday  night,  and  I  made  the 
assignment  and  conveyance  to  Lobree  about  8  o'clock  Monday 
morning.  The  keeper  Avas  in  charge  then  of  these  goods  that 
had  been  attached.  At  the  time  I  made  the  assignment  and 
conveyance  I  did  not  know  that  I  was  owing  more  money  than 
I  could  pay,  but  I  knew  that  I  could  not  pay  all  at  once  what 


CH.  XLiii.]  Banking.  519 

I  owed  then.  There  was  more  monej  due  my  creditors  then 
than  I  coiikl  have  paid  if  they  had  demanded  immediate  pay- 
ment. I  did  not  have  money  enough  in  my  hands  to  pay  my 
debts  as  they  became  due.  I  had  merchandise.  Only  one  side 
of  the  store  was  attached.  *  *  *  j  j^^d  property  enough 
to  pay  everybody,  and  I  wanted  to  pay  everybody.  I  did  not 
have  money  enough  at  the  time  to  pay  them.  I  had  made  no 
proposition  to  my  creditors  for  a  settlement.' 

"  It  is  claimed  that  this  testimony  shows  a  clear  and  distinct 
confession  of  insolvency,  but  we  do  not  think  that  this  claim 
can  be  maintained. 

'^  It  has  been  held,  under  the  United  States  Bankrupt  Act, 
that  a  trader  is  insolvent  when  he  is  unable  to  pay  his  debts  as 
they  become  due  in  the  ordinary  course  of  business.  (Toof  v. 
Martin,  13  Wall.  10;  AVager  v^  Hall,  16  Wall.  581.)  In  the 
case  first  cited  the  district  judge  had  ruled  that  'if  the  bank- 
rupts could  not  pay  their  debts  in  the  ordinary  course  of  busi- 
ness, that  is,  in  money,  as  they  fell  due,  they  were  insolvent.' 
Speaking  of  this  the  Supreme  Court,  by  Mr.  Justice  Field,  said: 

'^ '  The  rule  thus  laid  down  may  not  be  strictly  correct  as 
applied  to  all  bankrupts.  The  term  insolvency  is  not  always 
used  in  the  same  sense.  It  is  sometimes  used  to  denote  the 
insufficiency  of  the  entire  property  and  assets  of  an  individual 
to  pay  his  debts.  This  is  its  general  and  popular  meaning. 
But  it  is  also  used,  in  a  more  restricted  sense,  to  express  the 
inability  of  a  party  to  pay  his  debts  as  they  become  due  in  the 
ordinary  course  of  business.  It  is  in  this  latter  sense  that  the 
term  is  used  when  traders  and  merchants  are  said  to  be  insol- 
vent; and  as  applied  to  them,  it  is  the  sense  intended  by  the 
act  of  Congress.  It  was  of  the  bankrupts  as  traders  that  the 
district  judge  was  speaking  when  he  used  the  language  which 
is  the  subject  of  criticism  by  counsel.  With  reference  to  other 
persons  not  engaged  in  trade  or  commerce,  the  term  may,  per- 
haps, have  a  less  restricted  meaning.  The  Bankrupt  Act  does 
not  define  what  shall  constitute  insolvency,  or  the  evidence  of 
insolvency,  in  every  case.' 

"  It  was  further  said :  '  In  the  present  case  the  bankrupts 
were  insolvent  in  both  senses  of  the  term  at  the  time  the  con- 
^veyances  in  controversy  were  made.' 


520  I^'SOLVENCY.  [CH.  XLIII. 

''  In  Bump's  Law  and  Practice  of  Bankruptcy  (5tli  ed.),  page 
469,  it  is  said:  '  Perhaps  no  precise  rule  can  be  laid  down 
which  will  be  applicable  to  all  cases,  inasmuch  as  the  determina- 
tion of  each  case  rests  largely  upon  its  own  peculiar  facts.  It 
is  generally  held  by  the  bankrupt  courts  that  a  trader  who  is 
not  able  to  pay  all  his  debts  in  the  usual  and  ordinary  course 
of  business,  as  persons  carrying  on  trade  usually  do,  is  insol- 
vent, within  the  meaning  of  the  Bankrupt  Law,  and  there  is 
no  better  general  rule  to  govern  courts  when  they  are  consider- 
ing the  facts  of  a  case.  It  is  neither  too  broad  or  too  narrow, 
while  it  would  be  quite  too  narrow  and  restricted  to  hold  that 
failure  to  pay  some  one  debt  when  due  is  evidence  of  insol- 
vency in  all  cases  under  the  act.  AVhether  a  single  instance 
of  non-payment  of  a  debt  at  maturity  would  be  evidence  in  a 
given  case  of  insolvency  depends  somewhat  upon  the  magnitude 
of  the  debt,  the  locality  of  the  debtor,  and  what  is  the  ordinary 
course  of  business  and  custom,  in  that  respect,  of  the  locality 
where  the  debtor  resides,  and  upon  such  other  facts  and  cir- 
cumstances as  bear  upon  the  question  of  insolvency.  *  *  * 
The  question  is  whether  the  debtor  or  trader  is  able  to  pay  his 
debts  in  the  ordinary  course  as  persons  carrying  on  trade  there 
usually  do.  Hence,  it  may  be,  and  undoubtedly  is,  true  that 
insolvency  in  commercial  centers  is  not  insolvency  in  small 
country  towns.  In  the  former  places,  if  the  debtor's  paper  is 
dishonored,  his  credit  is  gone,  and  he  is  prima  facie  insolvent; 
whereas,  in  the  latter  localities,  it  is  not  so.  Insolvency  is  a 
fact  and  not  a  matter  of  definition  or  rule  of  law;  and  what 
is  evidence  of  insolvency  in  London  or  Paris  or  New  York  is 
not  evidence  of  insolvency  everywhere.'     (Citing  cases.) 

"  The  Insolvent  Act  of  this  State  provides  that  a  debtor  may 
be  put  into  involuntary  insolvency  if  he,  '  being  insolvent,  has 
suffered  his  property  to  remain  under  attachment  or  legal 
process  for  four  days  '  (§  8),  but  it  nowhere  defines  what  shall 
constitute  insolvency.  The  Civil  Code,  however,  in  the  title  in 
regard  to  assignments  for  the  benefit  of  creditors  (§  34:50), 
says:  '  A  debtor  is  insolvent,  within  the  meaning  of  this  title, 
when  he  is  unable  to  pay  his  debts  from  his  own  means  as 
tlicy  become  due,'  and  it  has  been  held  that  this  is  the  correct 


CH.  XLiii.]  Baxkixg.  521 

definition   of  insolvency  under   the   Insolvent   Act   of    1880. 
(AVaslibnrn  v.  Hnntington,  78  Cal.  573.) 

""What  is  meant  by  the  words  '  from  his  own  means? '  The 
definition  of  the  word  '  means/  as  given  by  "Webster,  is  '  re- 
sources or  income.'  But  '  resources  '  does  not  necessarily  mean 
money  in  hand.  A  debtor  may  have  ample  resources  to  pay 
all  his  debts  as  they  become  due,  and  yet  have  no  money  in 
his  pocket  or  in  bank.  Is  such  a  debtor  insolvent?  Suppose  a 
wheat  buyer  should  have  a  thousand  tons  of  wheat  in  a  ware- 
house, worth  $25,000,  which  he  is  holding  for  better  prices, 
and  is  indebted  in  the  sum  of  a  thousand  dollars.  Is  he  insol- 
vent unless  he  sells  the  wheat  at  whatever  price  he  can  get, 
and  pays  the  debt  as  it  becomes  due?  "We  do  not  think  he  is, 
under  the  Insolvent  Law  of  this  State. 

"  In  Bell  V.  Ellis,  33  Cal.  620,  it  was  held  that  a  trader  is 
insolvent  when  he  is  not  in  a  condition  to  meet  his  engage'ments, 
01-  to  pay  his  debt  in  the  usual  and  ordinary  course  of  business; 
but  he  is  not  so  merely  because  his  assets,  at  a  given  date,  may 
not  satisfy  all  the  demands  against  him  due  and  to  become  due. 
I"he  court  said :  '  The  test  question  is  not,  will  his  effects  realize 
enough  to  pay  his  debts  due  and  to  become  due?  but,  are  his 
affairs  in  such  a  condition  as  to  enable  him,  in  the  usual  and 
ordinary  course  of  his  business,  to  make  his  payments  as  they 
fall  due?  and  the  question  is  to  be  answered  by  the  jury  in 
view  of  all  the  circumstances  affecting  the  business  of  the 
trader,  including  the  value  of  his  effects,  the  extent  and  char- 
acter of  his  business,  the  manner  in  which  it  was  being  con- 
ducted, whether  upon  a  speculative  or  legitimate  and  safe 
basis,  the  amount  of  his  profits,  the  extent  of  his  liabilities, 
whether  kept  within  a  safe  limit,  and  generally  his  credit,  ac- 
companied by  the  benefit  or  advantage  which  lie  has,  outside 
of  the  mere  value  of  his  property  and  the  debts  due  him,  arising 
from  the  good  will  of  the  business.'  " 

§  329.  Means  may  exist  in  another  State. 

Keferring  to  the  California  statute,  it  is  not  essential  that 

the  means  from  which  the  debts  are  to  be  paid  must  exist  in 

this  State;  nor  is  the  debtor  to  be  considered  insolvent,  merely 

because  he  has  not  means  in  this  State  to  pay  his  creditors  here.^ 

2  Cook  V.  Cockins.  117  Cal.  140. 


522  Insolvency.  [ch.  xliii. 

§  330.  Officer  taking  deposit  with  knowledge  of  bank's  insolv- 
ency—  liable  when, 

A  leading  case  determined  by  the  Supreme  Court  of  the 
State  of  Iowa,  holding  an  officer  liable  for  receiving  money 
when  he  had  knowledge  of  the  insolvency  of  the  bank,  is  re- 
ported in  the  case  of  the  State  of  Iowa  v.  Eifert,  102  la.  188. 

The  facts  in  this  case  briefly  stated  are  as  follows:  A  bank- 
er's son  and  employee  received  a  deposit  when  the  insolvency 
of  the  bank  Avas  known,  and  an  hour  or  two  before  it  finally 
closed.  He  received  this  deposit  contrary  to  a  telephone  mes- 
sage from  the  banker  "  to  take  no  more  deposits,"  When  the 
banker  reached  home  he,  having  knoAvledge  that  the  deposit 
had  been  received,  made  no  effort  to,  and  failed  to,  return  it, 
and  four  days  later  included  the  same  in  a  general  assignment 
for  the  benefit  of  his  creditors. 

The  defendant  Avas  indicted  and  convicted  of  fraudulent 
banking  and  sentenced  to  be  confined  in  the  State  penitentiary 
for  two  years  and  six  months,  and  to  pay  costs. 

The  defendant  was  tried  and  convicted  under  a  statute  of 
the  State,  which  reads  as  follows: 

"  If  any  such  bank,  banking  house,  exchange  broker  or  de- 
posit office,  firm,  company,  corporation,  or  party,  shall  receive 
or  accept  on  deposit  any  such  deposits,  as  aforesaid,  when  in- 
solvent, any  officer,  director,  cashier,  manager,  member,  party 
or  managing  party  thereof,  knowing  of  such  insolvency,  who 
shall  knowingly  receive  or  accept  or  be  accessory  to  or  permit 
or  connive  at  the  receiving,  or  accepting  on  deposit  therein  or 
thereby  any  such  deposit  as  aforesaid,  shall  be  guilty  of  a 
felony,  and  upon  conviction  shall  be  punished  by  imprisonment 
in  the  State  prison  for  a  term  not  to  exceed  ten  years,  or  by 
imprisonment  in  the  county  jail  not  to  exceed  one  year,  or 
both  fine  and  imprisonment,  the  fine  not  to  exceed  ten  thousand 
dollars." 

In  the  absence  of  a  statute  which  prescribes  no  remedy,  a 
common-law  action  may  be  resorted  to.^ 

§  331.  Officer  must  have  actual  knowledge  of  insolvency. 

Actual  knowledge  of  insolvency  must  be  shown;  and  in  order 
to  sustain  a  conviction  it  must  be  shown  that  the  defendant 
had  some  direct  personal  connection  with  the  receipt  or  accept- 

3  Cummings  r.  Winn,  89  ]Mo.  51. 


CH.  xLiii.]  Banking.  523 

ance  of  the  deposit;  being  in  the  bank,  and  in  a  room 
other  than  where  the  deposit  is  received  by  the  bank,  is  not 
knowledge/ 

It  is  held  in  the  case  of  Stout  v,  Lusk,  9  Kas.  App.  694,  that 
the  provisions  of  a  State  statute  providing  a  penalty  are  not 
applicable  to  national  banks  and  their  officers. 

The  contrary  doctrine  is  that  in  the  State  of  Iowa  the  statu- 
tory provisions  as  to  fraudulent  banking  applies  to  national 
banks  as  well  as  to  State  banks.^ 

In  the  State  of  Minnesota  the  law  holds  the  directors  of  a 
bank  liable  for  accepting  through  its  teller  a  deposit,  where 
they  have  knowledge  of  the  bank's  insolvency,  and  where  the 
depositor  is  ignorant  of  such  insolvency.  The  acts  of  the  teller 
in  such  cases  are  held  to  be  the  acts  of  the  directors.® 

§  332.  Insolvency  —  National  banks. 

Section  918,  Eevised  Statutes  of  the  United  States  (1879), 
provides  that  "  any  bank  officer  who  violates  the  provisions  of 
section  918,  Revised  Statutes,  by  receiving  deposits  for  his 
bank,  or  by  assenting  to  the  same  with  knowledge  that  the 
bank  is  insolvent  or  in  failing  circumstances,  is  individually 
responsible  for  such  deposits  so  received,  and  the  depositor  may 
maintain  an  action  against  such  officer  for  the  amount  of  his 
deposit." 

The  depositor,  and  not  the  assignee  of  the  bank,  is  the  proper 
party  to  institute  the  suit  authorized  by  the  foregoing  section.^ 

By  the  provisions  of  section  3  of  the  Act  of  March  2,  1897, 
entitled  "An  Act  authorizing  the  appointment  of  receivers  of 
national  banks,  and  for  other  purposes,"  it  is  provided  that 
the  shareholders  may  manage  the  liquidation  of  the  bank. 

§  333.  Deposits  may  be  recovered,  when. 

The  general  rule,  as  laid  down  in  a  j^ew  York  case,  is  that 
a  depositor  may  recover  funds  deposited  in  a  bank,  if  at  the 
time  of  making  the  same,  the  officer  accepting  the  same  had 
knowledge  of  the  fact  that  the  bank  was  hopelessly  insolvent. 

The  reasoii  of  the  rule  is,,  that  the  deposit  is  obtained  by 
fraud.^ 

4  The  Slate  v.  Warner,  CO  Kan.  6  Baxter  r.  Couphlin,  70  Minn.  1. 
94.  V  Cummings  v.  Winn,  89  Mo.  51. 

5  State  V.  Fields,  62  N.  W.  65.3.  8  Cragie  v.  Hadley,  99  X.  Y.  131. 


52-i  Ix.solve:xcy.  [ch.  xliii. 

Where  an  endorser  paid  a  note  to  a  bank  and  took  the  bank- 
er's receipt  therefor,  but  the  bank  failed  to  make  the  proper 
application  of  the  money,  and  afterward  went  into  insolvency, 
it  is  held  that  the  money  may  be  recovered.^ 

It  is  held  in  the  case  of  Citizens'  Xat.  Bank  v.  Dowd,  35 
Fed  Rep.  340,  that  a  creditor  of  an  insolvent  national  bank, 
Avhere  his  demand  grew  ont  of  a  fraudulent  transaction,  perpe- 
trated by  the  bank,  and  in  contemplation  of  wrecking  the  same, 
that  he  does  not  become  a  preferred  creditor.^*^ 

The  general  rule  as  laid  down  by  the  Illinois  courts  is  that 
"  one  who  deposits  a  check  in  a  bank,  and  receives  credit 
therefor,  is  not  entitled  after  the  check  has  been  paid  by  the 
drawee  bank  and  the  proceeds  thereof  so  mingled  with  other 
money  of  the  bank  in  which  it  was  deposited,  as  to  lose  their 
identity  as  a  fund,  to  be  made  a  preferred  creditor  for  the 
amount  of  the  check,  upon  the  voluntary  assignment  of  the 
latter  bank,  a  few  days  after  receiving  the  check,  although  the 
officers  then  knew  the  bank  was  insolvent." 

The  court  in  the  case  of  Lanterman  y.  Travous,  174  111. 
459,  further  says:  "It  has  frequently  been  announced  as  the 
law  of  this  State  that  even  in  a  case  where  a  definite  and  ac- 
tual trust  fund  which  possesses  all  the  attributes  of  a  separate 
and  distinct  identity  has  been  so  mixed  and  mingled  with  other 
funds  as  to  render  identification  impossible,  the  cestui  que 
trust  in  the  event  of  the  insolvency  of  the  trustee  is  remitted 
to  the  position  and  the  rights  of  a  general  creditor." 

The  rule,  as  laid  down  in  Xebraska,  is  that  a  creditor  may 
follow  his  money  while  he  can  trace  and  distinguish  it  or  the 
proceeds  thereof,  but  not  after  it  has  passed  into  the  hands 
of  the  assignee,  and  is  mingled  with  the  other  funds  of  the 
bank,  and  the  fact,  that  the  bank  is  insolvent  within  the  knowl- 
edge of  its  officers  and  receives  the  money  of  the  depositor 
which  amounts  to  a  fraud  upon  him,  is  not  of  itself  sufficient 
to  entitle  the  latter  to  a  pj-eference  from  the  funds  of  the  bank 
in  the  hands  of  an  assignee. 

The  court,  in  the  case  of  Higgins  v.  Hayden,  says:     '"  AVhere 

»:Massev  v.  Fisher.   62   Fed.   Rep.  lo  Citizens'  Xat.  Bank  r.  Dowd.  3.5 

958;  Lake  Frie  &  Western  R.  R.  Co.        Fed.  Rep.  340. 
r.  Indianapolis  Xat.  Bank,  65  Fed. 
Kep.  690. 


CH.  XLiii.]  Ba^stkixg.  525 

a  bank  remains  open,  holding  itself  out  as  ready  to  transact 
business,  this  is  an  implied  representation  of  solvency,  and  for 
it  to  receive  a  deposit  when  its  insolvency  is  known  to  its  officers 
is  a  fraud  upon  the  depositor.  *  *  *  The  depositor  may, 
therefore,  at  his  election  rescind  the  contract  of  deposit  and 
recover  back  the  mone}'  or  property,  but  he  must  do  so  before 
the  deposit  has  become  commingled  with  the  general  assets  of 
the  bank.^^ 

§  334.  Special  deposits  recoverable. 

The  rule  is  well  settled,  that  a  special  or  specific  deposit 
ivliich  has  actually  been  I'ept  separate  antd  not  intermingled 
with  the  general  deposits  of  the  hanh,  and  which  can  he  identi- 
fied, may  he  reclaimed}^ 

§  335.  Insolvency  demonstrated. 

The  Supreme  Court  of  the  United  States  in  the  case  of 
Roberts  v.  Hill,  23  Blatchf.  312,  says  that  "  insolvency  as 
ordinarily  defined  is  that  condition  of  affairs  in  Avhich  a  mer- 
chant or  business  man  is  unable  to  meet  his  obligations  as 
they  mature  in  the  usual  course  of  business,  *  *  *  J^^ 
act  of  insolvency  takes  place  when  this  state  of  affairs  is 
demonstrated  and  the  merchant  has  actually  failed  to  meet 
some  of  his  obligations.  A  bank  is  in  contemplation  of  in- 
solvency when  the  fact  becomes  reasonably  apparent  to  its 
officers  that  the  concern  will  presently  be  unable  to  meet  its 
obligations,  and  will  be  obliged  to  suspend  its  ordinary  opera- 
tions." 

§336.  Set-off. 

The  rule  is  laid  down  that  "the  right  to  set-off  must  he 
governed  hy  tire  state  of  things  existing  at  the  moment  of  a 
hank's  insolvency."  ^^ 

The  provisions  of  section  5242,  Revised  Statutes  of  the 
United  States,  does  not  prohibit  any  legal  or  equitable  set-off 
which  a  debtor  of  a  bank  may  have  against  any  obligation 
owing  by  him,  to  it  at  the  time  of  the  bank's  insolvency. 

11  Higgins  r.  Hayden.  .53  Neb.  61.  la  Cook     County     Nat.     Bank.     v. 

12  American  Express  Nat.  Bank  v.  United  States,  107  U.  8.  445 ;  Ains- 
Tlie  Lorietta  Gold  &  Silver  Mining  worth  r.  Bank  of  California,  119 
Co.,  165  111.  103;  Vail  r.  Newark  Cal.  470;  Stephens  v.  Schiichmann, 
Sav.  Inst.,  32  N.  J.  Eq.  631.  32  Mo.  App.  333. 


526  IxsoLVE^^CY.  [ch.  xliii. 

The  Supreme  Court  of  the  United  States  in  the  case  of  Scott 
V.  Armstrong,  146  U.  S.  499,  defines  the  rule  to  be  '^  that 
■where  the  mutual  obligations  have  grown  out  of  the  same 
transactiens,  insolvency,  on  the  one  hand,  justifies  the  set-off 
of  the  debt  on  the  other." 

Equitable  set-off. 

The  deposit  of  a  depositor  (in  an  insolvent  commercial 
bank)  may  be  set  off  against  his  note,  matured  or  immatured,^* 

A  depositor  cannot  purchase  a  debt  after  insolvency  for  the 
purpose  of  set-off  against  a  debt  owing  by  himself. 

Xeither  can  the  maker  of  a  note  which  is  sued  upon  by  the 
cashier  set  off  certificates  of  deposit  purchased  by  him  for  that 
purpose  after  the  bank  became  insolvent.^^ 

Interest. 

The  rule  is  that  the  debt  of  the  creditor  as  against  an  in- 
solvent bank  continues  to  draw  interest.  Where  a  share- 
holder is  liable  for  the  debts  of  the  bank,  he  is  liable  for  in- 
terest to  the  extent  to  which  the  bank  would  have  been  liable 
not  in  excess  of  the  maximum  liability  fixed  by  the  stat- 
ute.^^ 

Dividends. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 
Merrill  v.  National  Bank  of  Jacksonville,  very  fully  discusses 
the  rights  of  a  secured  creditor  of  an  insolvent  national  bank 
to  prove  and  receive  dividends  upon  the  face  of  his  claim  as  it 
stood  at  the  time  of  the  declaration*  of  insolvency. 

Mr.  Chief  Justice  TuUer,  in  delivering  the  opinion  of  the 
court,  says: 

"  Our  conclusion  is  that  tlie  claims  of  creditors  are  to  be  de- 
termined as  of  the  date  of  the  declaration  of  insolvency,  irre- 
spective of  the  question  whether  particular  creditors  have  secu 

14  Armstrong,  Receiver,  r.  Warner  15  Dver   v.   Sebrell.   135  Cal.   597; 

et    al.,    49    Ohio    St.    376;    Camden  Davis  \-.   Knipp,  92  Hun    (X.   Y.)  ; 

Nat.   Bank   v.   Green,   45   N.   J.   Eq.  Storth  r.  George,  150  Mo.  1. 

546:    Kentucky    Flour    Co.    v.    Mer-  16  Richardson  r.  Irons,  121  U.  S.  27. 
chants'    Nat.  "Bank,    90    Ky.    225; 
Mercer  v.  Dyer,  15  Mont.  317. 


CH.  XLiii.]  Bankhstg.  527 

rity  or  not.  "When  secured  creditors  have  received  payment 
in  full,  their  right  to  dividends,  and  their  right  to  retain  their 
security  ceases,  but  collections  therefrom  are  not  otherwise 
material.  Insolvency  gives  unsecured  creditors  no  greater 
rights  than  they  had  before,  though  through  redemption  or 
subrogation  or  the  realization  of  a  surplus  thev  may  be  bene- 
fited." ^^ 

Debts  due  savings  hank. 

A  State  statute  which  provides  that  deposits  made  by  a 
savings  bank  in  a  national  bank,  which  becomes  insolvent,  shall 
be  first  paid,  is  in  conflict  with  the  National  Bank  Laws.^® 

Ride  —  Set-off  —  Insolvent  savings  hank. 

The  general  rule  is  that  a  debtor  to  the  bank  for  money 
borrowed  can  not  set-off  the  amount  of  his  deposit  against  his 
indebtedness.-^^ 

This  rule  applies  to  mutual  savings  hanks,  such  as  are  purely 
mutual  and  have  no  capital  stock ;  but  where  savings  banks  are 
incorporated  institutions  wutli  a  capital  stock,  in  the  absence 
of  a  special  statute,  a  depositor  in  such  a  bank,  especially  if 
the  relationship  created  by  the  deposit  becomes  one  of  debtor 
and  creditor,  the  general  rule  and  right  of  set-oif  existing  would 
prevail. 

17  Merrill  v.  Jacksonville  Nat.  Bank.  101  U.  S.  275;  Auburn  Sav- 
Bank,  173  U.  S.  131.  iiigs  Bank  v.  Hayes,  61  Fed.  911. 

18  Davis    r.    The    Elmira    Savings  19  Hannon  r.   Williams,   34   N.   J. 

Eq.  255. 


CHAPTER  XLIV. 


DISSOLUTION. 

§  337.  Voluntary  liquidation. 

The  Xational  Banking  Act,  section  5220,  provides  that 
"Any  association  may  go  into  voluntary  liquidation  and  be 
closed  by  the  vote  of  its  shareholders  owning  two-thirds  of  its 
stock." 

A  meeting  of  the  stockholders  mnst  be  held  and  notice  of 
the  date  and  purpose  of  the  meeting  must  be  given  to  all  the 
stockholders. 

It  requires  two-thirds  of  all  the  stock  of  the  bank,  voting  in 
the  affirmative,  to  place  the  bank  in  liquidation. 

The  rights  of  the  minority  stockholders  are  not  considered. 
Their  wishes  and  interests,  although  affected  adversely,  can- 
not be  heard.^ 

§  338.  Authority  of  officers  in  charge. 

"  Without  express  authority  from  the  shareholders  in  a 
national  bank,  its  officers,  after  the  bank  goes  into  liquida- 
tion, can  only  bind  them  by  acts  implied  by  the  duty  of 
liquidation."  ^ 

The  stockholders'  rights  cannot  be  affected  by  the  acts  of 
the  president  done  after  the  bank  is  placed  in  liquidation.^ 

§  339.  Liquidation  does  not  dissolve  corporation. 

It  continues  as  a  body  corporate  under  the  provisions  of 
law  governing  national  banks  until  its  affairs  are  closed,  and 
may  sue  and  be  sued  for  the  purpose  of  winding  up  its  busi- 
ness.* 

A  State  bank,  unless  the  statute  expressly  provides  that  its 
charter  shall  be  dissolved  by  the  act  of  liquidation,  can  liquidate 
all  of  its  affairs,  i.  e.,  pay  all  of  its  debts  and  afterward  re- 
organize and  again  do  a  banking  business. 

1  ^Yatkins  r.  Nat.  Bank,  51  Kan.  3  Schrader  r.  Manufacturers' 
2.54.                                                                      Bank,   1.33  U.  S.   67. 

2  Richmond  v.  Irons,  121  U.  S.  27.  4  Xational  Bank  r.  Insurance  Co., 

104  U.  S.  54. 

[528] 


cir.xLiv.]  Banking.  529 

A  banking  corporation  maj  fail  in  business  and  its  affairs  be 
liquidated  bv  a  receiver  appointed  by  the  court  and  if  its  debts 
are  all  paid  the  stockholders  remain  the  owners  of  the  charter 
and  may,  after  a  compliance  with  the  provisions  of  law  as  to 
the  repayment  into  the  bank  of  the  capital  required  before 
the  commencement  of  business,  again  conduct  a  banking  busi- 
ness. Liquidation  does  not  dissolve  the  charter  in  the  absence 
of  a  statute  to  that  affect.  The  charter  of  a  corporation  can 
only  be  forfeited  by  a  suit  instituted  by  the  State,  and  the  act 
of  liquidation  is  not  one  which  would  authorize  the  forfeiture 
of  a  charter. 

§  340.  Liquidation  dividends. 

"'Liquidation  di\'idends  of  a  national  bank  belong  to  the 
holder  of  the  shares,  whether  those  shares  be  recorded  upon 
the  books  of  the  bank  or  not  and  must  be  paid  to  the  holder 
of  such  shares  on  demand."  '^ 

5  Savings   Institution  v.   National      Bank,  89  Me.  500. 
34 


CHAPTER  XLV. 


EXTENSION  OF  CORPORATE  EXISTENCE. 

§  341.  National  banks. 

The  act  of  July  12,  1882,  provides  that  national  banks  may 
extend  their  charter  in  accordance  with  said  act,  which  reads 
as  follows: 

"  Be  it  enacted  hy  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assembled,  that 
any  national  banking  association  organized  under  the  Acts  of 
February  25,  1863,  June  3rd,  1864,  and  February  14th,  1880, 
or  under  Sections  fifty-one  hundred  and  thirty-three,  fifty-one 
hundred  and  thirty-four,  fifty-one  hundred  and  thirty-five, 
fifty-one  hundred  and  thirty-six  and  fifty-one  hundred  and 
fifty-four  of  the  Revised  Statutes  of  the  United  States,  may, 
at  any  time  within  tw^o  years  next  previous  to  the  date  of  the 
expiration  of  its  coiporate  existence  under  the  present  law, 
and  with  the  approval  of  the  Comptroller  of  the  Currency,  to 
be  granted,  as  hereinafter  provided,  extend  its  period  of  suc- 
cession by  amending  its  Articles  of  Association  for  a  terra  of 
not  more  than  twenty  years  from  the  expiration  of  the  period 
of  succession  named  in  said  Articles  of  Association,  and  shall 
have  succession  for  such  extended  period,  unless  sooner  dis- 
solved by  the  act  of  share  holders  owning  two-thirds  of  its 
stock,  or  unless  its  franchise  becomes  forfeited  bv  some  vio- 
lation of  law,  or  unless  hereafter  modified  or  repealed." 

The  application  to  extend  the  corporate  existence  is  made 
by  the  president  of  the  bank  and  is  addressed  to  the  Comp- 
troller of  the  Currency.  For  form  of  application,  see  Ap- 
pendix. 

The  powers  of  attorney,  signed  by  the  shareholders,  should 
be  sent  to  the  Comptroller,  with  the  amendment  to  the  article 
of  association  on  which  their  names,  signed  by  their  authorized 
attorney,  appear. 

It  preferred,  a  shareholders'  meeting  may  be  called  in  order 
to  vote  for  the  extension  and  to  sign  the  necessary  papers. 

[530] 


CH.  XLV.]  Banking.  531 

Proper  notice  of  the  meeting  should  be  given  to  the  share- 
holders. At  this  meeting  the  shareholders  may  appear  in  per- 
son or  by  attorney.  In  executing  and  forwarding  the  papers 
the  following  intsructions  should  be  strictly  observed: 

"  The  certificate  of  the  president  or  cashier  certifying  that 
shareholders  owning  at  least  two-thirds  of  the  stock  having 
consented,  in  ^^a■iting,  to  the  amendment,  should  be  executed 
in  duplicate  and  one  copy  transmitted  to  this  office,  together 
with  the  letter  applying  for  approval  of  the  Comptroller,,  at 
least  two  months  prior  to  the  expiration  of  the  corporate  exist- 
ence of  the  bank,  in  order  that  the  Comptroller  may  have  suffi- 
cient time  to  cause  the  special  examination  to  be  made,  as  re- 
quired by  section  3  of  said  act. 

"  If  any  shares  of  the  bank  stand  in  the  name  of  admin- 
istrators, executors,  trustees,  or  guardians,  and  it  becomes 
necessary  to  have  the  votes  of  these  shares  to  make  up  the 
majority  required  to  authorize  the  amendment,  duly  certified 
copies  of  the  legal  appointment  of  such  administrators,  exec- 
utors, trustees,  or  guardians  should  be  sent  to  the  Comptroller. 
In  the  case  of  stock  held  by  a  corporation,  a  certified  copy  of  a 
resolution  of  the  board  of  directors  authorizing  the  president 
or  other  officer  to  consent  to  the  amendment,  is  required. 

When  stock  voting  for  an  amendment  stands  in  the  name 
of  an  assignee,  there  must  be  evidence  showing  that  the  shares 
of  stock  have  been  regularly  transferred  to  him,  as  such  as- 
signee, on. the  books  of  the  bank.  When  the  amendment  is 
signed  by  an  attorney  acting  for  shareholders,  properly  exe- 
cuted powers  of  attorney  must  be  furnished." 

Upon  the  receipt  of  the  papers  in  due  form,  the  Comp- 
troller will  order  the  special  examination  required  by  section 
3,  which  must  be  paid  for  by  the  bank,  and  if  the  report  of  the 
examiner  is  favorable,  the  Comptroller  will,  at  the  date  of 
expiration  of  charter,  issue  his  certificate  of  extension. 

With  but  few  exceptions  there  is  no  provision  made  by  the 
laws  of  the  various  States  for  extending  the  charters  of  banks. 
When  the  life  of  the  charter  expires,  if  the  bank  desires  to 
continue  in  business  it  must  proceed  to  reincorporate  and 
comply  with  the  law  in  force  at  the  time  of  its  reincorporation. 


CHAPTER  XLVI. 


CLEARING-HOUSE. 

§  342.  History  of  the  clearing-house. 

The  origin  or  history  of  the  clearing-house  as  given  by 
Bouvier  is  presented  as  follows: 

"  The  origin  of  the  system  is  said  to  have  been  in  Edin- 
burgh ;  at  least  the  bankers  of  that  city  so  claim,  but  the  earliest 
record  of  one  (and  that  is  not  clear  as  to  date)  is  that  of  Lon- 
don, founded  in  1775,  or  possibly  earlier.  It  was  started  in 
the  alehouse  of  those  times,  the  general  resort  of  ^proprietors 
of  new  enterprises.  The  system,  however,  increased  in  use- 
fulness so  much  as  to  require  rooms,  which  were  procured 
in  Lombard  street,  and  a  system  was  rapidly  developed  of  ex- 
changing checks  and  other  securities  to  reduce  the  amount  of 
actual  money  required  for  settlements.  In  this  country  such 
associations  were  established  in  Xew  York,  in  1853,  Boston,  in 
1856,  Philadelphia,  Baltimore,  and  Cleveland,  in  1858,  \Yor- 
cester,  in  1861,  Chicago,  in  1865,  and  since  that  date  the  num- 
ber increased  rapidly  to  thirty-one  in  1884  (Bolles,  Proct. 
Bkg.),  and  the  system  is  now  extended  to  most  of  the  cities 
in  which  there  are  several  banks.  They  also  exist  in  Australia, 
France,  Germany,  Switzerland,  Italy,  and  other  continental 
countries  of  Europe.  Most  of  these  associations  are  unincor- 
porated, but  in  Minnesota  there  is  an  act  (March  4,  1893)  for 
their  incorporation.  The  Clearing-house  Association  of  Xew 
York  consists  of  all  the  incorporated  banks  —  private  bankers 
not  being  admitted  as  in  London.  Two  clerks  from  each  bank 
attend  at  the  clearing-house  every  morning,  where  one  takes 
a  position  inside  of  a  counter  at  a  desk  bearing  the  number  of 
his  bank,  the  other  standing  outside  the  counter  and  holding 
in  his  hand  parcels  containing  the  checks  on  each  of  the  other 
banks  received  the  previous  day.  At  the  sound  of  a  bell,  the 
outside  men  begin  to  move,  and  at  each  desk  they  deposit  the 
proper  parcel,  with  an  account  of  its  contents — until,  having 
walked  arotmd,  they  find  themselves  at  their  own  desk  again. 
At  the  end  of  this  process  the  representative  of  each  bank  has 

[532] 


cii.  xLvi.]  Banking.  533 

handed  to  the  representatives  of  every  other  bank,  the  demands 
against  them,  and  received  from  each  of  the  other  banks  their 
demands  on  his  bank.  A  comparison  of  the  amounts  tells  him 
at  once  whether  he  is  to  pay  into  or  receive  from  the  clearing- 
house a  balance  in  .money.  Balances  are  settled  daily.  In 
London  the  practice  of  presenting  checks  at  the  clearing-house 
has  been  held  a  good  presentment  to  the  banker  at  law.  It  is 
not  usual  to  examine  the  checks  until  they  are  taken  to  the 
bank,  and  if  any  are  then  found  not  good  they  are  returned  to 
the  bank  which  presented  them,  which  settles  for  such  re- 
turned checks.  In  this  country  when  a  check  is  returned  not 
good  through  the  clearing  house,  it  is  usually  again  presented 
at  the  bank." 

§  343.  Character  and  object. 

The  character  and  object  of  a  clearing-house,  as  formed  by 
the  co-operation  of  a  number  of  bankers  in  the  city  of  Phila- 
delphia some  years  ago,  is  very  correctly  defined  by  the  court 
in  the  case  of  Philler  v.  Patterson,  47  Am.  St.  Rep.  896. 

The  court  after  examining  the  constitution  or  articles  of 
association  adopted  by  the  banks,  then  says: 

"  In  substance  these  articles  amount  to  an  agreement  with 
each  other  by  thirty-eight  national  banks  in  the  city  of  Phila- 
delphia to  facilitate  and  simplify  the  settlement  of  daily 
balances  between  them  for  their  mutual  advantage.  This 
agreement  substitutes  a  settlement  made  at  a  fixed  time  and 
place  each  day,  by  representatives  of  all  the  members  of  the 
association,  in  the  place  of  a  separate  settlement  by  each  bank 
with  every  other  made  over  the  counter.  No  other  object  is 
contemplated  or  provided  for.  The  association  does  not  pro- 
vide for  any  united  action  for  any  business  purpose.  It  does 
not  contemplate  the  employment  of  capital  or  credit  in  any 
enterprise.  It  proposes  and  provides  for  co-operation  to  ex- 
pedite and  simplify  the  transaction  by  each  member  of  the  as- 
sociation of  its  own  proper  business  in  one  particular,  viz.,  the 
settlement  of  daily  balances  with  the  other  national  banks 
doing  business  in  the  city.  Incidentally,  co-operation  in  this 
particular  would  tend  to  bring  the  banks  belonging  to  the 
association  into  closer  relations,  enable  them  to  become  more 
familiar  with  the  volume  of  business  and  the  actual  condition 


534  Cleaeixg-House.  [cii.  xlvi. 

of  each  other,  and  open  the  way  to  make  them  mutually  help- 
ful in  times  of  financial  stringency,  but  these  results  are  in- 
cidental only.  The  Clearing-house  Association  is  nothing  more 
nor  less  than  an  agreement  among  thirty-eight  national  banks 
to  make  their  dailv  settlements  at  a  fixed  time  and  place  each 
day." 

The  mode  of  putting  the  agreement  or  articles  of  associa- 
tion of  the  clearing-house  into  operation,  is  then  given  by  the 
court  in  the  following  language: 

"  To  carry  this  agreement  into  operation  it  became  neces- 
sary to  determine  the  place  and  hour  at  which  the  settlement 
should  be  made.  A  suitable  room  was  secured,  fitted  up  with 
desks  and  other  necessary  appliances  at  the  expense  of  the 
associated  banks,  and  a  manager  chosen  to  preside  over  it  and 
direct  the  action  of  the  clerks  and  runners  wdien  in  session. 
This  room  is  the  clearing  place,  or  in  the  language  of  the  con- 
stitution of  the  association,  the  clearing-house.  It  is  the  place 
where  the  representatives  of  the  several  banks  meet  and  where 
all  balances  are  struck  and  settled  daily  between  the  banks 
composing  the  association. 

''At  the  close  of  each  meeting  the  amount  due  to  and  from 
each  bank  is  definitely  ascertained.  The  debtor  banks  then 
pay  over  to  the  manager  the  gross  balance  due  from  them  to 
settle  their  accounts  with  all  the  members  of  the  association, 
and  he  makes  distribution  of  the  sum  so  received  among  the 
creditor  banks  entitled  to  receive  them.  The  clearing-house  is, 
therefore,  not  a  business  organization,  a  corporation,  a  part- 
nership, or  an  artificial  person  of  any  sort,  but  a  place  in  which 
the  members  of  the  association  settle  with  each  other  daily. 
We  come  now  to  consider  the  committee  and  the  position  in 
the  general  scheme  occupied  by  it.  Among  the  economies  in 
time  and  labor  contemplated  by  the  banks  was  a  settlement  of 
daily  balances  without  the  necessity  for  handling  and  counting 
the  cash  in  every  case.  To  pro^nde  for  this  the  banks  agreed 
that  they  would  deposit  in  the  hands  of  certain  persons,  to  be 
selected  by  them  and  to  be  called  the  clearing-house  commit- 
tee, a  sum  of  money  or  its  equivalent  in  good  securities,  at 
a  fixed  ratio  upon  their  capital  stock,  to  be  used  for  payment 
of  balances  against  them.  For  these  sums  the  committee  was 
to  issue  receipts  or  certificates  in  convenient  sums,  and  these 


CH.  xLvi.]  Baxkixg.  535 

receipts  or  certificates  were  to  be  used  in  lieu  of  the  cash 
they  represented,  which  remained  in  the  hands  of  the  com- 
mittee pledged  for  the  payment,  when  payment  became  neces- 
sary, of  the  certificates.  The  committee  held  the  funds  and 
securities  deposited  with  them  in  trust  for  the  special  purpose 
of  securing  the  payment  as  far  as  they  would  reach  of  the 
balances  due  from  the  bank  making  the  deposit. 

'*  On  September  24,  IS 73,  the  associated  banks  entered 
into  another  agreement  with  each  other  by  which,  '  for  the 
purpose  of  enabling  the  banks,  members  of  the  Philadelphia 
Clearing-house  Association,  to  afford  proper  assistance  to  the 
mercantile  and  manufacturing  community  and  also  to  facilitate 
the  interbank  settlements  resulting  from  the  daily  exchanges,' 
they  authorized  the  committee  to  receive  from  any  member 
of  the  association  additional  deposits  of  bills  receivable  and 
other  securities  and  issue  certificates  therefor  '  in  such  amount 
and  to  such  percentage  thereof  as  may  in  their  judgment  be 
advisable.'  The  additional  certificates,  if  issued,  they  agreed 
to  accept  in  payment  of  daily  balances  at  the  clearing-house 
on  the  condition  that  the  securities  deposited  therefor  should 
be  held  by  the  committee  '  in  trust  as  a  special  deposit  pledged 
for  the  redemption  of  the  certificates  issued  thereupon.'  The 
committee  were  made,  both  by  the  original  articles  of  associa- 
tion and  by  the  aditional  contract  of  1873,  trustees  or  agents 
for  all  the  members  of  the  association,  with  authority  to  accept 
deposits  in  money 'or  securities  and  to  issue  their  own  receipts 
therefor,  the  money  or  securities  remaining  in  their  hands  in 
pledge  for  the  redemption  of  the  receipts  or  certificates  so  is- 
sued by  them.  When  a  bank  to  which  certificates  had  been 
issued  under  the  original  plan  or  the  contract  of  1873  failed  to 
redeem  them  when  their  redemption  became  necessary,  it  was 
the  duty  of  the  committee  to  collect  the  securities  in  their  hands 
and  apply  the  proceeds  to  the  payment  of  the  holders  of  the  cer- 
tificates. The  deposits  were  made  and  the  certificates  issued  un- 
der an  unconditional  pledge  of  the  securities  to  the  committee 
for  the  payment  of  the  certificates,  and  their  title  could  only 
be  divested  by  the  payment  of  the  sums  for  which  the  securities 
were  pledged.  The  entire  plan  on  which  the  settlements  are 
made'  is,  therefore,  a  device  adopted  by  the  banks  to  facilitate 
their  legitimate  business  as  banks,  and  involves  no  element 


536  Cleakiisig-IIouse.  [ch.  xlvi. 

of  speculation,  and  no  business  undertaking  by  or  on  behalf 
of  the  associated  banks." 

The  method  of  puting  into  operation  the  business  of  the 
clearing-house  formed  in  Philadelphia  in  1873,  may  differ  in 
detail  from  that  followed  in  other  cities,  but  the  character  and 
object  of  all  are  the  same. 

The  principle  and  prime  purpose  of  the  clearing-house  is 
to  settle  daily  the  accounts  between  members,  and  at  the  same 
time  and  place  make  paj^uents  of  balances  resulting  from  the 
exchanges. 

§  344.  Organization  —  Not  a  corporation. 

A  clearing-house  association  is  a  voluntary  organization 
which,  as  we  have  found,  may  be  created  by  any  number  of 
banks  or  bankers  doing  business  in  the  particular  city  or  place 
where  formed. 

Its  affairs  are  governed  by  a  constitution  and  rules  adopted 
by  agreement  between  the  banks  forming  such  association. 

It  has  been  said  that  a  clearing-house  association  may  be  in- 
corporated. Where  corporations  are  formed,  they  are  governed 
as  to  their  purpose  and  power,  by  the  law  of  the  State  or  the 
law  under  which  they  are  created. 

A  clearing-house  may  be  incorporated,  but  its  members  or 
stockholders  can  only  be  persons  or  corporation  banks  which 
are  authorized  by  law  to  subscribe  for  and  hold  stock  in  other 
corporations. 

The  l^ational  Banking  Law  prohibits  a  national  banking 
association  ''  from  purchasing  or  subscribing  to  the  stock  of 
another  corporation."^ 

It  will  be  seen,  therefore,  that  the  law  excluding  a  national 
bank  from  purchasing  or  subscribing  to  stock  of  another  cor- 
poration, would  prevent  it  from  membership  as  a  stockholder 
in  a  clearing-house  association,  if  incorporated  with  a  capital 
stock;  and  where  the  law  of  a  State  prohibits  a  State  bank 
from  subscribing  or  holding  stock  by  purchase  in  another  cor- 
poration such  inhibitions  would  also  prevent  a  State  bank  from 
membership  in  an  incorporated  clearing-house  association. 

It  will  be  seen,  therefore,  that  it  must  be  a  voluntary  asso- 
ciation in  order  that  national  banks  may  become  members. 

1  California  Bank  v.  Kennedy,  167U.  S.  362. 


en.  XLvi.]  Banki:!^g.  .  537 

A  volinitarv  clearing-house  association  is  not  an  institution 
in  violation  of  the  Statutes  of  the  United  States  relating  to 
national  banks.  See  Philler  v.  Patterson,  47  Am.  St.  Rep. 
896,  but  if  it  became  an  incorporated  association,  it  might  be 
a  violation  of  the  statute. 

The  association  as  it  now  exists  is  not  in  conflict  with  law. 
It  may  organize  by  adopting  a  constitution  and  by-laws  or 
rules  for  its  guidance. 

§  345.  Rules  of  association. 

The  rules  or  by-laws  adopted  by  the  association  must  be  such 
are  are  reasonable  and  not  in  violation  of  any  law. 

The  Supreme  Court  of  the  State  of  Massachusetts  in  the 
case  of  Manufacturers'  Xational  Bank  v.  Thompson,  129  Mass. 
4.38,  declares  that  the  rules  of  the  clearing-house  association 
are  adopted  solely  for  the  purpose  of  facilitating  exchanges 
among  the  banks ;  and  where  banks  in  a  city  form  themselves 
into  a  voluntary  association  for  the  purpose  of  making  clear- 
ings and  for  their  mutual  benefit,  they  are  governed  and  bound 
by  the  rules  of  the  association.^ 

In  the  case  of  Preston  and  others  v.  Canadian  Bank  of  Com- 
merce, 23  Fed.  Rep.  179,  the  court,  in  discussing  the  rule  of 
the  Chicago  Clearing-house,  which  reads  as  follows: 

"All  checks  received  in  the  morning  exchanges,  not  found 
good,  are  to  be  returned  the  same  dav  received  before  one 
and  a  half  p.  m.  to  the  member  from  whom  received,  who 
shall  immediately  reimburse  the  holder  of  the  same,"  holds  that 
it  is  entirely  com]ietent  for  members  of  a  clearing-house  associa- 
tion, who  are  dealing  with  each  other,  to  make  an  agreement 
binding  upon  the  members. 

§  346.  Non-member  bank  not  aifected  by  clearing-house  rules. 

In  the  case  of  Overman  v.  Hoboken  City  Bank,  2  Vroom. 
CN.  J.  L.  Rep.)  563,  the  court  in  discussing  the  question  of  a 
bank  representing  as  an  agent  parties  who  are  not  members, 
says : 

"  Moreover  the  entire  system  on  which  the  business  of  the 
clearing-house   is   transacted   is   inconsistent  with   the   theory 

2  0'Bripn  et  al.  r.  Grant,  146  N.  Y.  1G3,  17.3;  Exchange  Bank  v.  Bank  of 
North  America,  132  Mass.  147. 


538  Cleaking-House.  [cii.  xlvi. 

that  any  of  the  members,  in  their  transactions  with  each  other, 
are  the-  agents  of  parties  who  are  not  members.  They  trust 
each  other  as  principals,  and  hence  the  facility  with  which  that 
immense  business  is  transacted.  If  each  member  were  bound, 
as  in  ordinary  business,  to  stop  to  inquire  into  the  fact  of 
agency,  and  the  responsibility  of  principals,  the  association 
could  not  profitably  live  a  day.  Besides,  if  the  several  members 
have  the  power,  in  any  given  transaction  in  the  clearing-house, 
of  acting  for  a  stranger  to  the  institution,  and  in  his  behalf 
and  name,  such  stranger,  'pro  liac  vice,  would  stand  in  the  posi- 
tion of  a  member  —  a  circumstance  repugnant  to  the  nature  of 
the  organization  of  the  association,  as  it  is  represented  to  this 
court  in  the  evidence." 

A  custom  or  special  usage  of  trade  which  may  confuse  the 
operations  of  the  general  rules  of  law,  should  be  construed 
strictly  and  should  not  be  extended  to  persons  who  are  not 
clearly  proved  to  have  acted  under  them. 

As  between  a  bank  and  the  drawers  and  payees  of  checks 
which  have  been  drawn  thereon,  the  relation  is  controlled  by 
the  well-settled  principles  of  the  law  merchant ;  which  rules 
cannot  be  altered  or  modified  by  a  rule  or  custom  passed  by  a 
clearing-house.^ 

§  347.  Settling  daily  exchanges. 

The  mode  of  settling  daily  exchanges  through  the  clearing- 
house is  accomplished  by  the  following  method: 

"At  the  hour  named  a  runner  and  a  settling  clerk  represent- 
ing each  bank  met  at  the  clearing-house.  These  representa- 
tives of  the  respective  banks  brought  with  them,  in  separate 
sealed  packages,  the  checks  which  the  banks  they  represented 
held  against  other  banks.  The  runner  of  each  bank  thereupon 
delivered  to  the  settling  clerk  of  the  others  these  packages, 
taking  receipts  therefor,  so  that  at  the  common  place  of  meet- 
ing the  clerk  of  each  bank  received  from  every  other  bank 
the  checks  drawn  against  the  bank  he  represented.  The  mak- 
ing up  of  these  packages  for  exchange  is  thus  provided  for 
in  the  rules: 

"  '  Kule  TTI.  Sealed  packages,  well  gummed  and  sealed  with 
wax  and  endorsed  with  ink  or  indelible  pencil,  sliall  be  used 

3  People  V.  St.  Nicholas  Bank,  77  Hnn   (N.  Y.),  160. 


CH.  XL VI.]  Baxki::^g.  539 

exclusively  in  the  morning  exchange  in  the  runners'  exchange, 
and  the  amounts  stated  thereon  shall  be  the  basis  of  settle- 
ment. These  packages,  with  the  seals  unbroken,  shall  be 
delivered  by  the  messengers  of  the  several  banks  to  their  re- 
spective institutions ;  other^nse,  no  responsibility  shall  attach 
to  the  sender.' 

"  After  these  packages  had  been  received  the  settling  clerk 
of  each  bank  made  up  from  the  indorsements  on  the  packages 
delivered  to  him  the  debts,  and  stated  the  credits  arising  from 
the  sum  of  the  packages  delivered  by  the  iTinner  of  his  bank 
to  the  settling  clerks  of  the  other  banks.  The  sheets  thus 
made  up  were  then  turned  over  to  the  manager  of  the  clearing- 
house, by  whom  they  were  verified  and  consolidated.  The 
manager's  balance  sheet  hence,  necessarily,  contained  a  state- 
ment itemizing  the  aggregated  debts  and  credits  of  all  the 
banks  concerned  in  the  clearing.  Where  any  fractional  sum 
was  due  by  a  bank  in  consequence  of  the  clearing,  this  frac- 
tional sum  was  paid  to  the  manager  by  a  due  bill,  the  manager 
treating  this  due  bill  as  cash,  deposited  it  in  the  bank  where 
his  account  Avas  kept  and  the  sum  of  this  due  bill  became  a 
credit  item  in  favor  of  the  bank  holding  it  in  the  clearing  of 
the  next  morning." 

§  348.  Presentment  of  collection  through  clearing-house. 

The  Supreme  Court  of  the  State  of  Massachusetts  says  that 
a  note  sent  through  a  clearing-house  to  a  bank  at  which  it  is 
payable,  is  not  a  demand  for  immediate  payment  made  during 
business  hours,  but  was  equivalent  to  leaving  the  note  at  the 
bank  for  collection  from  the  maker  on  or  before  the  close  of 
banking  hours;  and  that  the  payment  of  such  a  note  at  the 
clearing-house,  was  a  provisional  payment  only  which  became 
complete  when  the  note  was  paid  in  the  usual  and  ordinary 
course  of  business.* 

Where  there  has  been  due  presentment  of  a  check  to  the 
drawee  and  payment  demanded  and  refused,  the  drawer,  if 
otherwise  liable,  is  not  discharged  because  of  failure  to  present 
the  check  at  the  clearing-house  in  accordance  with  a  universal 
usage,  though  it  would  have  been  paid  had  it  been  so  presented.' 

4  National  Exchan<?e  Bank  r.  Bank  f>  Kleekaup   v.  Myer,   5  Mo.  App. 

of  North  America,  132  Mass.  147.  444. 


540  Clearing-House.  [ch.  xlvi. 

§  349.  Effect  of  clearing-house  customs  between  member  banks. 

In  an  action  hj  one  bank  against  another,  where  both  were 
members  of  a  clearing-house,  to  recover  the  amount  of  a  note 
Avhich  was  inchided  in  the  account  in  the  clearing-house  of  the 
defendant  bank  against  the  plaintiff  bank  at  which  the  note  was 
payable,  and  returned  by  the  plaintiff  to  the  defendant  after  the 
close  of  business  hours,  if  there  is  evidence  of  a  universal  cus- 
tom among  the  members  of  the  association  which  choose  to  clear 
their  notes  through  the  clearing-house  in  place  of  presenting 
them  for  payment  at  the  bank  where  they  are  payable;  and 
where  notes  included  in  clearing-house  settlement,  which  turn 
out  to  be  not  good  and  are  not  returned  to  the  paying  bank 
before  its  time  of  closing,  the  conditional  payment  becomes 
absolute.^ 

§  350.  Settlement  between  banks  members  of  clearing-house. 

A  settlement  made  by  two  banks  through  the  clearing-house, 
in  which  checks  are  presented  and  exchanged,  and  the  balance 
between  them  is  struck,  will  be  final  and  conclusive  if  either 
fails  to  give  notice  of  maturity  to  meet  the  balance  against  it  on 
the  general  adjustment,  before  the  hour  when  banks  usually 
pass  credit  to  the  checks  of  their  depositors. 

The  mutual  credit  thus  given  cannot  be  recalled  by  either 
one  to  the  detriment  of  the  other.^ 

If  by  any  mistake  of  fact  a  check  so  paid  but  not  good  was 
retained  until  after  the  hour  fixed,  the  payment  is  held  to  be 
treated  as  payment  made  under  a  mistake  of  fact  to  the  same 
extent  and  subject  to  the  same  right  of  reclamation  as  if  it  had 
been  made  without  the  intervention  of  the  clearing-house. 

§  351.  Rules  in  Massachusetts  where  check  was  paid  under  mis- 
take of  fact. 

Where  a  check  has  been  paid  under  a  mistake  of  fact,  the 
rule  that  the  bank  paying  it  can  recover  the  amount  from  the 
bfiuk  to  which  it  was  paid,  is  good,  provided  that  the  latter  had 
not  changed  its  position  between  the  hour  named  for  return  and 
the  return  of  the  check.® 

6  Atlas  Nat.  Bank  r.  National  Ex-  Ann.  251:  Mercliants'  Nat.  Bank  i\ 

change      Bank,      176      Mass.      .300;  National  Eafrle  Bank,  101  Mass.  281. 

O'Brien  et  al.   v.  Grant,   146  N.  Y.  8  Merchants'    Nat.    Bank    r.    Na- 

163.  tional   Bank  of  Commonwealth,  1.39 

TBlaffer    et    al    v.    Bank,    35    La.  Mass.  513. 


€11.  xLvi.]  Banking.  541 

The  Federal  Court,  in  the  case  of  Preston  v.  Canadian  Bank 
of  Commerce,  23  Fed.  Rep.  182,  in  discussing  the  law  and  rule 
as  laid  dowTi  by  the  Massachusetts  court,  says: 

"  It  seems  to  me  that  the  Boston  case  has  gone  to  the  very 
verge  of  the  application  of  the  rule  that  inoney  voluntarily 
paid  under  a  mistake  can  be  recovered  back;  and  it  is  noticeable 
that  the  next  succeeding  case  in  the  volume  of  Massachusetts 
Reports  in  which  the  case  relied  upon  by  the  plaintiffs  is  re- 
ported, was  where  a  bank  sued  to  recover  on  the  ground  they 
had  paid  a  check  by  reason  of  having  made  a  mistake  of  fact 
as  to  the  amount  to  the  credit  of  the  drawer,  and  the  court  held 
that  no  such  recovery  could  be  allowed,  because  it  was  laches  to 
make  such  a  mistake  of  fact. 

"  If  parties  competent  to  contract  within  what  time  they  may 
correct  mistakes  in  their  dealings  with  each  other  have  so  con- 
tracted, it  seems  to  me  the  courts  have  no  right  to  override  or 
disregard  such  an  agreement.  If  a  mistake  which  is  discovered 
within  an  hour,  or  within  ten  minutes,  after  the  expiration  of 
the  time  limited  by  the  agreement  for  its  correction  may  be 
corrected,  I  can  see  no  reason  why  it  cannot  be  corrected  a  week 
afterward,  or  whenever  it  is  discovered.  The  Massachusetts 
court  puts  its  decision  on  the  ground  that  you  may  correct  a 
mistake  of  this  kind  at  any  time  after  it  is  discovered,  if  it 
places  the  party  to  whom  the  check  is  returned,  in  no  worse  con- 
dition than  it  would  have  been  if  it  had  been  returned  within 
the  stipulated  time ;  thus,  overlooking  the  rule  that  parties  may 
agree  that  they  shall  not  have  the  right  to  correct  mistakes 
unless  done  within  a  limited  time." 

§  352.  Forged  checks  passing  through  clearing-house  —  Bank's 
liability  —  Negligence. 

The  facts  presented  in  the  case  of  Commercial  and  Farmers' 
Xational  Bank  v.  First  Xational  Bank  of  Baltimore,  reported 
in  30  Md.  11,  are,  as  the  court  says,  "  of  considerable  interest 
to  the  public  and  of  importance  to  the  banking  institutions;" 
and  by  reason  of  the  importance  of  these  questions  and  the  dis- 
cussion, we  feel  justified  in  giving  the  opinion  of  the  court  in 
full,  which  opinion  states  also  the  facts: 

"  This  case  presents  questions  of  considerable  interest  to 
the  public,  and  of  importance  to  the  banking  institutions  of 


542  Cleaeing-House.  [ch.  xlvi. 

the  State.  The  material  and  undisputed  facts,  which  must  be 
stated  somewhat  in  detail,  are  these:  On  the  20th  of  December, 
1SC6,  about  2  o'clock  p.  m.  an  individual,  well  dressed  and  of 
respectable  appearance,  but  a  stranger  unknown  to  any  of  its 
officers,  came  to  the  counter  of  the  receiving  teller  of  the  Com- 
mercial and  Farmers'  Xational  Bank,  said  he  wished  to  open 
an  account,  and  presented  a  check  on  the  First  Xational  Bank 
of  Baltimore  for  $4,600  15/100,  purporting  to  be  drawn  by 
Horace  Abbott,  dated  the  18th  of  December,  and  payable  to 
the  order  of  John  S.  Hillan.  The  teller,  who  knew  Mr.  Ab- 
bott's financial  standing  to  be  good,  and  had  seen  his  checks 
before,  produced  the  signature  book  in  which  the  man  put  the 
name  'John  S.  Hillan,  ^^o.  50-4  AV.  Fayette  Street,'  and  in- 
dorsed the  check  at  the  counter  in  that  name.  The  teller  then 
gave  him  a  customer's  small  bank  book,  in  which  the  amount 
o^  the  check  was  put  to  his  credit  as  cash ;  but  on  the  same  day 
the  teller  was  directed  by  the  cashier  not  to  allow  the  account 
to  be  drawn  upon  until  the  deposited  check  was  known  to  be 
good  or  was  paid.  On  the  morning  of  the  next  day,  the  21st, 
this  with  other  checks  was  sent  by  the  Commercial  and  Farmers' 
Bank  to  the  clearing-house,  its  amount  being  noted  on  the  lists 
which  were  there  balanced  and  settled.  From  thence  it  was 
taken  to  the  First  Xational  Bank,  where  it  was  passed  as 
genuine  by  the  proper  officers  of  that  bank,  charged  to  Mr. 
Abbott's  account,  and  credited  to  the  Commercial  and  Farm- 
ers' Bank.  By  the  custom  and  usage  of  all  the  banks  in  the 
city  of  Baltimore,  proved  by  all  the  witnesses,  where  a  check 
is  sent  through  the  clearing-house  to  the  bank  on  which  it  is 
drawn,  and  is  not  heard  from  before  eleven  o'clock  on  the  day 
on  which  it  is  so  sent,  the  bank  sending  it  has  the  right  to  assume 
it  was  good  or  had  been  paid,  and  to  act  accordingly.  On  the 
following  day,  the  2 2d,  after  the  check  had  thus  been  accepted 
as  genuine  and  paid  by  the  First  Xational  Bank,  the  same  person 
presented  himself  at  the  counter  of  the  paying  teller  of  the 
Commercial  and  Farmers'  Bank  Avith  his  bank  book,  and  said 
lie  wanted  to  draw  some  money;  a  blank  check  was  given  him 
which  he  filled  up  for  $4,.500,  payable  to  self  or  bearer,  and 
signed  the  name  '  John  S.  Hillan.'  The  teller  ascertained 
from  the  books  the  amount  to  bin  credit,  and  from  the  receiv- 
ing teller  his  identity  with  the  individual  who  had  previously 


CH.  xLvi.]  Banking.  543 

made  the  deposit,  compared  the  signature  of  the  check  with 
that  on  the  signature  book,  asked  him  how  he  wanted  the 
money,  and  whether  he  was  going  to  use  it  in  Baltimore,  with 
a  view  of  indorsing  the  check  good,  if  he  wished  to  use  it  in  the 
city  among  the  merchants;  but  the  man  replied  he  wanted  to 
take  the  money  to  Washington,  and  the  teller  then  paid  him 
the  $4,500  in  small  notes  of  fiyes  and  tens,  making  quite  a  large 
bundle. 

Mr.  Abbott  was  a  large  customer  and  depositor  of  the  First 
Xational  Bank,  and  was  absent  from  Baltimore,  from  the  14th 
to  the  22d  of  December.  His  account  charged  with  this  check 
was  overdrawn  by  him  on  Monday  the  24th,  to  the  amount  of 
$372  48/100,  and  the  overdrawing  continued  during  the  week 
until  Saturday  the  29th,  when  his  account  was  overdrawn 
$2,297,  and  after  bank  hours  of  that  day,  he  was  for  the  first 
time  informed  by  the  bank  officers  of  such  overdrawing.  This 
information  led  to  an  immediate  examination  of  his  account 
and  checks,  when  he  discovered  the  check  in  question,  pro- 
nounced it  a  forgery,  and  stated  he  never  knew  such  a  man  as 
Juhn  S.  Hillan,  and  had  never  drawn  such  a  check.  The 
forgery  of  his  name  was  very  skillfully  executed  and  difficult 
of  detection,  and  the  check  itself  was  in  printed  form,  exactly 
similar  to  those  used  by  him  from  his  check  book.  Xotice  of 
the  forgery  was  given  by  the  First  Xational  Bank  to  the  Com- 
mercial and  Farmers'  Bank,  on  Monday  the  31st,  and  re-pay- 
ment of  the  money  demanded,  but  the  latter  denied  its  liability 
beyond  the  $100  15/100  still  remaining  to  Hillan's  credit.  Xo 
such  person  as  John  S.  Hillan  could  be  discovered  or  traced. 

"  The  First  Xational  Bank  having  refunded  to  Abbott, 
brought  this  action  against  the  Commercial  and  Farmers'  Bank 
to  recover  back  the  money  the  former  had  thus  paid  on  this 
forged  check.  The  declaration  contains  the  common  counts 
for  money  paid  by  the  plaintiff  for  the  defendant,  at  its  re- 
quest; for  money  received  by  the  defendant  for  the  use  of  the 
plaintiff;  and  also  special  counts  for  money  paid  by  the  plain- 
tiff to  the  defendant,  at  its  request,  on  this  forged  check. 

"  It  is  our  first  duty  to  determine  what  principles  of  law  are 
to  govern  the  decision  of  the  case  upon  the  conceded  fact? 
above  stated.  In  arriving  at  a  just  conclusion  upon  this  sub- 
ject, we  are  without  the  aid  of  any  express  adjudication  of  our 


544  CLEARIISfG-HoUSE.  [cn.xLvi. 

own  courts,  for  no  case  similar  in  its  circumstances  has  hereto- 
fore arisen  in  this  State.  The  case  of  the  Merchants'  Bank  v. 
The  Marine  -Bank,  3  Gill  96^  is  materially  different  in  that 
there  was  there  a  genuine  instrument  upon  which  there  was  a 
forged  endorsement  of  the  payee's  name,  whereas  here  the 
check  is  a  forgery  throughout.  We  think,  however,  the  legal 
principles  which  must  guide  and  control  our  judgment  have 
been  settled  by  decisions  elsewhere  of  the  highest  authority. 

'*  In  the  early  case  of  Price  v.  Neil,  3  Burr.  1354,  where  an 
action  of  assumpsit  was  brought  to  recover  back  from  the  en- 
dorsee and  holder,  money  which  had  been  paid  to  him  by  the 
drawee  on  two  bills  of  exchange,  one  of  which  was  paid  with- 
out acceptance,  and  the  other  accepted  and  then  paid,  and  on 
both  of  wdiich  it  was  afterward  discovered  the  drawer's  name 
had  been  forged,  Lord  Mansfield,  after  adverting  to  the  form 
of  action  as  one  in  which  the  plaintiff  could  not  recover  the 
money  unless  it  be  against  conscience  in  the  defendant  to 
retain  it,  said:  '  But  it  can  never  be  thought  unconscientious  in 
the  defendant  to  retain  the  money  when  he  has  once  received 
it  upon  a  bill  of  exchange  endorsed  to  him  for  a  fair  and 
valuable  consideration,  which  he  had  bona  fide  paid  without 
the  least  privity  or  suspicion  of  the  forgery.  Here  was  no 
fraud,  no  wa-ong.  It  was  incumbent  on  the  plaintiff  to  be 
satisfied  that  the  bill  drawn  upon  him  iras  the  drawer's  hand 
before  he  accepted  or  paid  it;  but  it  was  not  incumbent  on  the 
defendant  to  inquire  into  it.'  The  authority  of  this  case  so 
far  as  it  proceeds  upon  the  ground  that  the  drawee  is  bound 
to  know  the  handwriting  of  his  correspondent,  and  as  appli- 
cable to  the  case  of  a  bill  accepted  or  paid  by  the  drawee,  where 
the  drawer's  name  has  been  forged  has  never  been  questioned, 
but  has  been  uniformly  and  abundantly  sustained.  It  is  be- 
cause the  acceptor  is  bound  to  this  knowledge  that  in  an  action 
against  him  the  handwriting  of  the  drawer  need  not  be  proved. 
The  same  rule  has  been  extended  to  bank  notes  and  bank 
checks  and  for  precisely  the  same  reason.  A  bank  which  re- 
ceives money  on  deposit,  and  thence  derives  profit  is  justly 
held  to  the  obligation  to  know  the  signatures  of  its  depositors 
to  their  checks,  and  if  it  pays  in  mistake  a  forged  check,  there 
is  no  reason  why  the  loss  should  be  shifted  to  anotlier  innocent 
party  upon  whom  the  law  casts  no  such  obligation,  and  who, 


€11.  xLYi.]  Baxkixg.  545 

upon  the  faith  of  such  pa^^nent,  has  parted  with  his  own  money 
€r  been  phiced  in  a  worse  position  than  he  would  have  been 
but  for  such  payment. 

"Another  instance  of  the  application  of  the  same  principle  is 
found  in  Smith  v,  Mercer,  6  Taunton,  76.  There  the  accept- 
ance was  forged,  and  the  bill  paid  at  maturity  to  a  holder  for 
Talue,  by  the  bankers  of  the  acceptor  where  he  kept  his  cash, 
and  where  by  the  forged  acceptance  it  was  made  payable.  The 
forgery  was  discovered  a  week  afterward  and  notice  given 
to  the  defendant,  but  it  was  held  that  the  bankers  were  not 
entitled  to  recover.  The  strongest  instance  perhaps  of  the 
enforcement  of  the  rule  is  that  of  Levy  r.  Bank  of  the  United 
States,  1  Binney,  27,  and  4  Dallas,  234,  Avhere  one  Thomas, 
passed  to  the  plaintiff,  Levy,  a  check  for  $2,600  on  the  bank, 
purporting  to  be  drawn  by  Charles  T\''harton,  in  favor  of 
Thomas  or  bearer.  The  plaintiff  sent  his  clerk  to  the  bank 
with  the  check,  and  it  was  received  by  the  teller  and  entered 
to  Levy's  credit  in  his  bank  book  as  cash.  A  few  hours  after- 
^\'ard  on  the  same  day,  it  was  discovered  that  "Wharton's  name 
had  been  forged  by  Thomas,  and  notice  thereof  was  given  to 
Levy^  and  yet  the  loss  was  thrown  upon  the  bank. 

"  In  every  stage  of  the  case  which  underwent  three  several 
arguments  in  different  courts,  the  decisions  were  in  favor  of 
Levy.  The  entry  in  his  book  as  cash  was  treated  as  payment 
of  the  check  by  the  bank,  and  upon  the  authority  of  Price  v. 
N^eal,  it  was  held  to  be  the  duty  of  the  bank  to  know  the  hand- 
writing of  its  depositor,  and  having  paid  the  check  to  a  holder 
for  value,  who  had  no  suspicion  of  the  forgery,  it  must  bear 
the  loss. 

"  In  another  case  (United  States  Bank  v.  Bank  of  Georgia, 
10  Wheat.  333),  bank  notes  issued  by  the  Bank  of  Georgia, 
which  had  been  fraudulently  altered  in  course  of  circulation, 
found  their  way  into  the  Bank  of  the  United  States,  and  the 
latter  presented  them  to  the  former  who  received  them  as 
genuine  and  placed  them  to  the  general  account  of  the  latter 
as  cash  by  way  of  general  deposit.  The  forgery  was  dis- 
covered nineteen  days  thereafter,  and  it  was  decided  by  the 
Supreme  Court  of  the  United  States  the  loss  must  fall  on  the 
Bank  of  Georgia,  whether  the  transaction  be  regarded  as  a 
payment  or  an  acceptance  of  the  notes.  Mr.  Justice  Story, 
35 


546  Clearing-IIouse.  [cii.  xlvi. 

who  delivered  the  opinion  of  the  court  in  that  ease,  reviewed 
all  the  authorities  and  held  that  the  receipt  by  a  bank,  of 
forged  notes  purporting  to  be  its  own,  must  be  deemed  an 
adoption  of  them  as  it  has  the  means  of  knowing  whether  they 
are  genuine  or  not :  ^  and  in  respect  to  persons  equally  innocent 
where  one  is  hound  to  Jcnow  and  act  upon  his  knowledge,  and 
the  other  has  no  means  of  knowledge,  there  seems  to  be  no 
reason  for  burdening  the  latter  with  any  loss  in  exoneration 
of  the  former.  There  is  nothing  unconscientious  in  retaining 
the  sum  received  from  the  bank  in  payment  of  such  notes, 
which  its  own  acts  have  deliberately  assumed  to  be  genuine.' 

''  In  a  more  recent  case  (Bank  of  St  Albans  v.  Farmers'  and 
Merchants'  Bank,  10  Vermont,  141),  the  same  doctrine  has 
been  affirmed  and  enforced  by  the  Supreme  Court  of  Ver- 
mont. There,  a  check  upon  the  Bank  of  St.  Albans  in  favor 
of  one  Wilson,  or  bearer,  was  purchased  by  another  bank  from 
the  alleged  payee,  an  entire  stranger,  who  endorsed  it  in  the  name 
of  Wilson,  and  it  was  paid  on  presentment  by  the  bank  on 
which  it  was  drawn.  It  was  subsequently  discovered  that  the 
name  of  the  maker,  who  was  the  president  and  a  customer  of 
the  bank,  was  a  forgery,  and  a  like  result  attended  the  effort 
to  recover  back  the  money.  We  may  also  refer  to  the  case 
of  Bernheimer  v.  Marshall,  2  Minn.  78,  for  a  very  clear  and 
well  reasoned  decision  upon  the  same  subject  and  to  the  same 
effect. 

"  The  facts,  as  well  as  the  principles  of  these  cases,  have 
been  cited  with  some  particularity,  because  of  their  close  re- 
semblance in  many  instances  to  those  of  the  case  at  bar.  In 
our  opinion,  the  ease  before  us  falls  within  the  general  doc- 
trines settled  by  these  authorities,  and  is  distinguishable  from 
that  class  of  cases,  where  forged  securities  of  third  persons 
have  been  received  in  payment,  as  well  as  from  those  which 
have  established  the  rule,  that  if  a  party  pays  money  under 
a  mistake  of  the  real  facts,  and  no  laehes  are  imputable  to  him, 
in  respect  of  his  omitting  to  avail  himself  of  the  means  of 
knowledge  within  his  power,  he  may  recover  it  back.  jSTor  is 
the  rule  of  commercial  law,  that  no  title  can  be  acquired 
through  a  forged  endorsement,  which  was  specially  relied  on 
by  the  appellee's  counsel  in  argument,  and  was  the  ground 
upon  which  the  court  below  proceeded  in  granting  the  plain- 


cii.xLvi.]  Baxki^^g.  •  54:7 

tiff's  first  prayer  applicable  here.  The  nile  as  stated,  is  no 
doubt  clearly  settled,  but  its  very  statement  shows  it  can  have 
no  bearing-  on  such  a  case  as  the  present.  It  presupposes  a 
genuine  negotiable  instrument,  the  title  to  which  can  be  trans- 
ferred by  a  valid  endorsement;  but  it  is  a  solecism  to  say,  any 
title  can  be  acquired  to  that  which  has  in  fact  no  existence. 
The  endorsee  of  a  check  or  note  to  which  the  maker's  name 
is  forged,  of  course  acquires  no  title  from  an  endorsement, 
and  no  rights  as  against  any  one  where  the  endorsement  is 
made  to  him  directly  by  the  forger  or  his  accomplice,  and  it 
matters  not  in  such  case  what  may  be  the  form  of  the  forged 
instrument,  whether  payable  to  order  or  bearer.  It  is  there- 
fore perfectly  immaterial  to  the  rights  of  the  parties  to  this 
suit  whether  the  name  John  S.  Hillan,  the  payee  in  the  check, 
was  a  fictitious  name  inserted  by  the  forger  and  endorsed 
thereon  by  the  person  who  deposited  the  check  with  the  de- 
fendant, or  was  the  genuine  name  of  the  criminal  thus  acting. 
In  neither  case  could  the  defendant  have  derived  any  title 
by  such  endorsement,  and  in  the  sense  of  acquiring  title  from 
one  capable  of  transferring  the  paper,  it  cannot  be  pretended 
the  defendant  was  a  bona  fide  holder.  The  appellant's  de- 
fence does  not  rest  upon  this  ground.  Its  legitimate  defence 
is,  that  in  entire  innocence  and  without  suspicion  of  the 
forgery,  it  received  in  the  course  of  business  a  forged  check 
on  deposit,  and  sent  it  through  the  regular  channel  of  com- 
munication, for  payment  to  the  plaintiff,  on  whom  it  purported 
to  be  drawn  and  upon  whom  the  law  cast  the  duty  and  obliga- 
tion of  knowing  the  maker's  signature;  that  the  plaintiff 
adopted  it  as  genuine  and  actually  paid  it  to  the  defendant, 
and  after  such  recognition  and  payment,  and  on  the  faith 
thereof,  the  defendant  paid  over  a  large  part  of  the  money 
to  the  same  party  who  had  made  the  deposit.  Apart  from 
any  other  facts  or  considerations  than  these,  there  is  in  the 
language  of  the  authorities  cited  nothing  unconscientious  in 
the  defendant's  retaining  the  money,  and  no  reason  why  the 
loss  as  between  parties  thus  equally  innocent  and  equally  de- 
ceived, but  where  one  is  bound  to  know  and  act  upon  his 
knowledge,  and  the  other  has  no  means  of  knowledge,  should 
be  thro^\^l  upon  the  latter  in  exoneration  of  the  former.  The 
safest  rule  for  the  commercial  public,  as  well  as  that  most 


548  •       Clearixg-House,  [ch.  xi-vr. 

consistent  with  justice,  is  to  allow  the  loss  to  remain  where 
by  the  course  of  business  it  has  been  placed.  Xor  is  the  argu- 
ment sound,  that  the  defendant  was  placed  in  no  worse  posi- 
tion in  consequence  of  the  plaintiff's  payment  of  this  check, 
because  by  receiving  and  treating  it  as  a  deposit  in  cash,  it 
assumed  to  take  the  risk  of  its  genuineness  as  between  itself 
and  the  depositor,  or  parties  whom  he  might  have  induced  to 
advance  money,  or  give  him  credit  upon  the  faith  of  the  state- 
ment in  the  bank  book  delivered  to  him,  at  the  time  the  deposit 
was  made.  How  far  the  defendant  might  have  been  estopped 
from  denying  its  responsibility,  to  those  who  might  have  dealt 
with  the  party  calling  himself  Hillan,  on  the  faith  of  this  re- 
presentation of  a  deposit  to  his  credit  as  cash,  it  is  not  neces- 
sary to  inquire.  Such  a  case  might  depend  on  a  variety  of 
considerations,  and  will  be  seasonably  decided  when  it  arises. 
It  is  sufficient  for  our  present  decision  to  say,  that  no  such 
question  is  presented  by  this  record.  The  payment  here  was 
in  fact  made  to  the  same  party  who  made  the  deposit,  the 
forger  himself  or  his  confederate,  and  in  our  judgment  it  i* 
very  clear  the  defendant  had  the  right  as  between  itself  and 
this  party  to  instruct  its  officers,  notwithstanding  the  entry  to 
his  credit  as  cash,  not  to  allow  the  account  to  be  dra^^^l  upon, 
until  it  was  first  ascertained  that  the  deposited  check  was  good 
or  had  been  paid.  Having  done  so  and  having  in  fact  paid 
to  such  party,  after  the  check  had  been  paid  by  the  plaintiff, 
it  is  impossible  to  say  the  defendant  has  not  been  placed  in 
a  worse  position  in  consequence  of  such  payment  by  the 
plaintiff. 

"  It  follows  from  these  views  there  was  error  in  granting 
the  plaintiff's  fi.rst  prayer,  and  for  this  error  the  judgment  must 
be  reversed.  The  remaining  inquiry  is,  ought  the  case  to  be 
sent  back  for  :i  nc;v  tri^l?  Upon  this  question  we  have  already, 
in  a  measure,  indicated  our  opinion.  It  has  been  the  unifonu 
practice  of  this  court  to  refuse  a  procedendo  where  it  is  appa- 
rent from  the  record  the  plaintiff  is  not  entitled  to  recover,  in. 
view  of  the  law  of  the  case  pronounced  by  the  appellate  tri- 
bunal. What  that  law  in  the  present  case  is  upon  the  undis- 
puted facts,  we  have  already  determined.  The  two  grounds 
upon  which  it  is  supposed  the  plaintiff  i^;  entitled  to  recover 
independently  of  the   law  thus   announced,   are   stated  in  it^ 


CH.  xLYi.]  Banking.  549 

second  and  third  prayers,  Avlilcli  were  rejected  by  the  court 
below.  The  first,  phices  the  ph^intiff's  rig'ht  to  recover  solely 
upon  the  ground  that  the  jury  might  find,  from  the  evidence, 
that  there  was  a  general  and  well-established  usage  of  the  banks 
in  Baltimore,  to  the  effect  that  where  one  bank  sends  to  the 
clearing  house  a  check  on  another  bank,  payable  to  order  and 
purporting  to  be  indorsed  by  the  payee,  the  bank  sending  it 
guarantees  the  indorsement  of  the  check  to  be  the  genuine 
indorsement  of  such  payee.  We  need  not  stop  to  inquire 
whether  there  is  evidence  proper  to  be  submitted  to  the  jury 
of  the  existence  of  such  usage,  because  we  have  shown  it  was 
immaterial  to  the  rights  of  these  parties  whether  the  indorse- 
ment of  Hillan's  name  was  genuine  or  fictitious,  the  drawer's 
name  being  a  forgery.  The  proposition  that  the  plaintiff  could 
recover  in  this  case  upon  the  basis  of  such  supposed  guarantee, 
assumes  that  the  obligation  of  knowing  the  handwriting  of 
Abbott  was  thrown  as  much  upon  the  defendant,  who  had  no 
means  of  such  knowledge,  as  upon  the  plaintiff  who  had  the 
means  and  who  w^as  in  law  presumed  to  know  his  signature, 
and  is  in  direct  conflict  with  the  authorities  before  cited. 

"  The  second  ground  proceeds  upon  the  theory  that  there 
was  a  general  and  well-known  usage  among  the  banks  in  the 
city  of  Baltimore,  not  to  receive  on  deposit  a  check  drawn  upon, 
another  bank  from  the  alleged  payee,  unless  he  is  known  to 
some  of  its  officers  or  is  introduced  or  identified  by  some  person 
so  known,  that  the  party  calling  himself  Hillan,  the  forger  or 
his  confederate,  was  entirely  unknown  to  the  officers  of  the 
defendant,  and  they  did  not  take  the  .precaution  of  requiring 
any  evidence  of  identity;  that  the  defendant's  cashier,  on  hear- 
ing the  fact  that  the  check  had  been  received  from  a  stranger, 
directed  the  teller  not  to  permit  the  party  to  draw  on  the  de- 
posit until  the  check  had  been  paid  by  the  plaintiff,  and  then 
sent  the  check  through  the  clearing  house  in  the  usual  way 
without  notice  to  the  plaintiff  of  the  circumstances  under  which 
it  was  received  and  held,  and  it  is  insisted  that  if  the  jury  found 
this  usage  and  these  facts  in  connection  with  those  stated  in  the 
first  prayer,  and  that  by  this  negligence  of  the  defendant  in  so 
receiving  the  check  and  sending  it  to  the  clearing  house  for 
payment,  the  forger  was  enabled  to  consummate  his  intended 
.  fraud,  the  plaintiff  is  entitled  to  recover. 


550  Cleaeixg-House,  [cii.  xlvi. 

''  In  our  opinion,  the  question  of  negligence  as  affecting  tlie 
rights  and  determining  the  responsibility  of  these  two  banks 
in  this  transaction,  must  stand  on  grounds  entirely  independent 
of  the  supposed  usage  not  to  receive  deposits  from  strangers 
Avithout  identification.  The  defendant's  officers  do  not  admit 
l-noirledge  of  any  such  custom,  and  aver  that  no  such  uniform 
practice  has  been  adopted  by  their  bank.  But  the  whole  object 
and  purpose  of  this  practice  in  each  bank  where  it  prevails,  is 
obviously  protection  and  security  for  itself  and  not  of  other 
banks  with  which  it  has  dealings.  The  defendant  had  a  clear 
legal  right  to  receive  this  check  on  deposit  as  it  did,  and  if  it 
acted  negligently  in  so  doing,  or  had  cashed  the  check  at  once 
instead  of  receiving  it  on  deposit,  it  certainly  would  have  in- 
curred the  risk  of  loss  to  itself,  but  w^e  cannot  perceive  how 
this  could  help  the  plaintiff's  case  or  excuse  its  own  negligence 
in  law,  or  enable  it  to  escape  the  consequences  of  its  failure  to 
detect  the  forgery  of  its  customer's  name,  when  the  check  was 
presented  to  it  for  payment.  It  certainly  would  be  very  unsafe 
to  decide  that  a  bank  can  be  excused  for  the  negligent  perform- 
ance of  the  duty  imposed  by  law  of  examining  its  customer's 
signature  to  a  check,  because  the  innocent  holder  happening  to 
be  another  bank  has  merely  failed  in  receiving  it,  to  observe  a 
usage  or  practice  adopted  for  its  ow^n  security.  Their  own 
interests  wdll  prompt  banks  to  adopt  proper  precautions  in  re- 
ceiving deposits  as  well  as  in  paying  out  money,  but  something 
more  is  required  than  the  mere  non-observance  of  the  usage 
here  attempted  to  be  set  up,  in  order  to  throw  the  loss  in  this 
case  upon  the  defendant  in  exoneration  of  the  plaintiff.  So  that 
at  last  the  question  presented  resolves  itself  into  this:  Can  it 
be  said,  as  matter  of  law,  that  the  sending  of  this  check  through 
the  clearing  house  and  the  failure  to  communicate  to  the  plain- 
tiff the  fact  that  it  w^as  received  from  a  stranger,  amount  to 
sr.ch  negligence  as  will  throw  the  loss  upon  the  defendant,  or 
onght  a  jury  to  be  permitted,  from  these  facts  or  any  circum- 
stances disclosed  in  evidence,  to  infer  such  negligence  and  find 
a  verdict  for  the  plaintiff  for  tlie  full  amount  claimed. 

"  It  was  at  one  time  held  in  cases  where  bills,  notes,  or  other 
securities,  transferable  by  delivery,  were  lost  or  stolen,  that 
it  was  a  sufficient  defence  to  an  action  by  the  holder  for  value. 


€11.  XLvi.]  Bankixg.  551 

tliat  he  had  received  them  under  circumstances  which  ought 
to  have  excited  the  suspicion  of  a  careful  and  prudent  man,  but 
the  English  decisions  following  that  of  Gill  v.  Cubitt,  3  Barn. 
<S<  Cress.  466,  adopting  this  doctrine  were  subsequently  over- 
ruled, and  Lord  Denman,  in  Goodman  v.  Harvey,  4  Adol.  & 
Ellis,  870,  has  said:  '  I  believe  that  we  are  all  of  opinion  that 
gross  negligence  only  would  not  be  a  sufficient  answer  where 
the  party  has  given  a  consideration  for  the  bill.  Gross  negli- 
gence may  be  evidence  of  mala  fides,  but  it  is  not  the  same 
thing.  "VYe  have  shaken  off  the  last  remnant  of  a  contrary 
doctrine.  Where  the  bill  has  passed  to  the  plaintiff  without 
iiny  proof  of  bad  faith,  there  is  no  objection  to  his  title.'  The 
^\eight  of  American  authority  is  to  the  same  effect.  Murray  v. 
Lardner,  2  Wallace,  110. 

'^  We  do  not  mean  to  adopt  this  law  as  applicalde  in  all  its 
bearings  to  a  case  like  that  now  before  us,  or  to  decide  that  a 
case  may  not  arise  in  which  bank  officers  and  agents  may,  in 
receiving  a  check,  act  in  a  manner  so  grossly  negligent,  even 
without  mala  fides,  or  by  their  conduct  so  mislead  and  lull  into 
security  the  bank  called  upon  to  pay,  as  to  excuse  its  failure  to 
immediately  detect  the  forgery,  and  where  a  jury  may  very 
properly  be  allowed  to  pass  upon  such  conduct  and  negligence 
as  most  essentially  facilitating  the  fraud,  and  occasioning  the 
loss,  and  find  a  verdict  accordingly.  But  in  view  of  the  long 
series  of  decisions  settling  the  law  so  as  to  protect  innocent 
holders  for  value,  a  much  stronger  case  must  be  made  out  than 
is  presented  by  this  record.  There  is  no  pretence  of  bad  faith 
on  the  part  of  the  defendant.  It  received  the  check  in  the 
ordinary  course  of  business  and  sent  it  through  the  usual 
channel  for  payment.  AVe  cannot  sanction  so  loose  a  doctrine 
as  to  hold  that  the  fact  that  it  came  through  the  clearing  house 
affords  any  shadow  of  excuse  to  the  plaintiff.  The  law  at- 
taches no  sanctity  to  this  source  of  communication,  and  none  in 
fact  can  be  imputed  to  it.  The  legal  effect  of  what  was  done 
here  as  in  every  case  of  presentment  and  demand  is  this:  the 
defendant  said  to  the  plaintiff,  'we  hold  this  cheek  on  your 
bank,  purporting  to  be  drawn  by  one  of  your  customers,  and 
demand  its  payment,'  and  it  can  make  no  difference  through 
what  source  this  demand  was  made,  whether  by  letter,  or  by 
special  messenger,  or  through  the  clearing  house. 


552  Clearixg-House.  [ch.  xlvi. 

"  The  appearance,  acts,  and  conduct  of  the  party,  both  when 
he  made  the  deposit  and  when  he  drew  out  the  money  fail  to 
exhibit,  so  far  as  the  proof  discloses,  anything  aifording  rational 
grounds  of  suspicion  of  the  forgery.  The  direction  of  the  de- 
fendant's cashier  to  its  teller  imports  nothing  more  than  proper 
precaution  on  his  part  to  protect  his  ovm  bank  from  loss,  con- 
sequent in  his  mind  from  the  risk  incurred  in  receiving  the 
check  from  a  stranger.  There  was  nothing,  therefore,  to  be 
communicated  important  for  the  plaintiff  to  know,  unless  it  be 
determined  that  in  every  case  where  a  check  is  received  from  a 
stranger  it  is  the  legal  duty  of  the  holder  to  communicate  this 
fact  to  the  bank  on  which  it  is  drawn,  before  or  at  the  time  of 
its  presentment  and  demand  for  payment,  and  that  the  failure 
to  do  this  is  negligence  or  evidence  of  negligence  affecting  his 
right  to  retain  the  money  paid  upon  the  check,  in  case  it  should 
afterward  be  discovered  to  be  a  forger}'.  We  are  not  prepared 
to  lay  down  so  stringent  a  rule  as  this.  Indeed,  it  is  difficult 
t.)  perceive  of  what  service  this  knowledge  would  have  been  to 
the  plaintiff,  unless  we  assume  it  had  the  means  of  knowing, 
not  only  Mr.  Abbott's  signature,  but  was  familiar  with  his 
business,  and  knew  all  the  parties  Avith  whom  he  had  dealings 
and  to  whom  it  became  necessary  for  him  to  give  checks;  and 
if  it  had  such  knowledge  the  fact  to  whom  this  check  was  given, 
was  as  effectually  imparted  from  the  face  of  the  paper  itself,  as 
it  could  have  been  by  any  written  or  verbal  communication 
from  the  defendant.  But  if  it  should  be  held  the  non-commu- 
nication of  this  fact  or  any  circumstances  attending  the  whole 
transaction  was  negligence  or  evidence  of  negligence  in  the 
defendant,  what  can  be  said  of  the  conduct  of  the  plaintiff,  not 
only  in  paying  the  check,  but  in  retaining  it  for  a  week,  and  in 
the  meantime  allowing  Abbott's  account  to  be  overdrawn,  from 
day  to  day,  to  a  large  amount  without  notice  to  him  of  that  fact, 
so  as  to  lead  to  a  more  speedy  detection  of  the  crime,  the  arrest 
of  the  forger  and  recovery  of  the  money  which  the  defendant 
had  paid  to  him?  The  chance  of  discovering  the  criminal  and 
recovering  the  money  was  certainly  diminished  by  each  day's 
delay,  and  if  the  negligence  of  either  party,  apart  from  the  legal 
obligation  resting  upon  the  plaintiff  to  know  Abbott's  signa- 
ture, can  be  regarded  as  most  essentially  facilitating  the  fraud, 
and  occasioning  the  loss,  and  the  liability  therefor  could  be 


CH.  XLVi.]  Banking.  553 

thereby  deterniined,  we  should  be  forced  to  say  the  superior 
negligence  was  upon  the  plaintiff. 

After  a  careful  and  patient  examination,  both  of  the  law 
and  the  facts  of  the  case,  we  are  satisfied  there  is  no  ground 
for  a  procedendo.  The  case  in  short  in  all  its  features  demon- 
strates the  propriety  of  the  rule  established  by  the  authorities 
we  have  cited.  We  are  fully  aware  of  the  importance  of  so 
settling  and  applying  the  law  as  not  to  facilitate  the  success  of 
frauds,  and  of  the  difficulty  of  detecting  the  skillful  forgeries 
unfortunately  so  prevalent  in  recent  times.  But  the  law  has 
fastened  the  obligation  of  knowing  the  signatures  of  its  cus- 
tomers upon  the  bank  which  receives  their  money  on  deposit, 
and  undertakes  to  pay  it  out  on  their  checks.  Greater  safe- 
guards and  precautions  must  be  devised  and  adopted  by  banks 
to  ascertain,  before  payment,  the  genuineness  of  checks  drawn 
upon  them.  The  primary  obligation  and  duty  are  there  placed, 
and  in  the  careful  discharge  of  that  duty,  and  in  the  just 
severity  of  courts  in  punishing  to  the  extreme  limits  of  the  law, 
the  guilty  perpetrators  of  such  crimes,  the  community  will  find 
its  best  security. 

"  The  defendant  admits  its  liability  to  the  extent  of  the 
$100  15/100,  still  remaining  in  its  hands,  and  the  judgment 
must  be  reversed  with  costs,  and  judgment  rendered  by  this 
court  in  favor  of  the  appellee  for  that  simi  only." 

§  353.  Rights  of  drawee  bank  against  payee  in  endorsing  forged 
check. 

The  facts  presented  in  the  case  of  ISTational  Bank  of  Xorth 
America  v.  Edward  D.  Bangs  and  another,  106  Mass.  439,  are 
very  interesting  and  of  peculiar  importance  to  bankers.  It 
is  conceded  that  they  should  all  be  well  informed  upon  ques- 
tions affecting  their  responsibility,  especially  where  the  ques- 
tion of  liability  arises  upon  their  acts  or  defaults  relating  to 
forged  instniments  which  may  come  into  their  hands.  There- 
fore having  in  view  the  question  of  responsibility  resting  upon 
a  banker  and  the  valuable  information  which  may  be  derived 
from  an  important  case,  we  believe  it  advisable  to  recite  the 
facts  which  were  agreed  upon  in  the  above  case  and  submitted 


554  Cleakixg-House.  [ch.  xlvi. 

to  the  court  upon  which  his  opinion  was  rendered.     They  are 
as  follows: 

"'  The  defendants,  on  September  21,  1SG9,  took  of  some 
person  (whom  they  do  not  remember,  and  did  not  remember 
when  they  were  first  notified  of  the  alleged  forgery,  and  could 
not  then  tell  whether  he  was  a  stranger  to  them  or  a  person 
known  to  them)  in  good  faith  and  for  full  value,  in  jjayment 
for  gold  sold  by  them  in  the  usual  course  of  their  business,  a 
<?heck  payable  to  their  order,  of  which  the  following  is  a  copy: 

•'  $1,308.63.     Xational  Bank  of  Xorth  America. 

-  Boston,  Sept.  21,  1869. 

"  Pay  to  the  order  of  E.  D.  <t  G.  W.  Bangs  &  Co.  thirteen 
hundred  and  eight  dollars  and  sixty-three  cents. 

'•  Xo.  932.  William  D.  Bickford." 

''  On  said  September  21st,  the  defendants  deposited  this 
check,  with  others,  and  with  their  other  moneys,  in  the  ]Mave- 
rick  Xational  Bank  of  Boston,  where  they  kept  their  deposits ; 
and  before  depositing  it,  for  the  purpose  of  enabling  the 
]\Iaverick  Xational  Bank  to  collect  the  check  from  the  Xational 
Bank  of  Xorth  America,  and  in  accordance  with  the  usage  of 
depositors  of  checks  payable  to  order,  they  indorsed  it  in  blank 
by  writing  on  the  back  of  it  '  E.  D.  &  G.  W.  Bangs  &  Co.'  The 
Maverick  Xational  Bank  the  next  day  presented  the  check 
at  the  clearing-house,  when  it  was  allowed  and  paid  to  the 
Maverick  Xational  Bank  by  the  Xational  Bank  of  Xorth 
America  in  the  usual  manner  of  settling  the  daily  balances  of 
banks  at  the  clearing-house. 

"  The  Maverick  Xational  Bank,  on  the  day  of  deposit, 
credited  the  defendants  with  the  amount  of  the  check  in  its 
account  with  them ;  and  the  Xational  Bank  of  Xorth  America 
on  September  22d,  debited  William  D.  Bickford,  in  whose  name 
the  check  purported  to  have  been  drawn,  and  who  was  a  cus- 
tomer of  and  a  depositor  in  the  X'^ational  Bank  of  Xorth  America, 
and  had  funds  on  deposit  there,  with  the  amount  of  the  check. 
The  check  was  retained  by  the  Xational  Bank  of  Xorth  America 
until  the  1st  or  2d  of  October,  1869,  when  it  was  sent  with 
other  checks,  by  the  Xational  Bank  of  Xorth  America,  to 
William  D.  Bickford,  with  the  montlilv  statement  of  his  ac- 


<'ii.XLVi.]  Baxkixg.  555 

comit,  according  to  the  usage  of  banks,  Bickford,  after  ex- 
amining the  checks,  pronounced  this  a  forgery,  and  on  the  4th 
of  October  informed  the  bank  of  it ;  and  on  the  same  day  the 
defendants  were  notified  by  the  National  Bank  of  North 
America  tliat  the  check  was  forged,  which  was  the  first  intima- 
tion or  suspicion  they  had  that  the  check  was  forged.  For 
the  purposes  of  the  hearing  on  this  statement  of  facts,  it  is 
achnitted  that  the  check  was  a  forgery." 

The  Court  in  rendering  its  opinion  upon  the  aboye  agreed 
statement  of  facts,  says: 

"  This  suit  is  brought  to  recoyer  money  paid  upon  a  check 
purporting  to  be  drawn  by  one  Bickford,  upon  the  plaintiff 
bank,  to  the  order  of  the  defendants,  indorsed  by  them,  de- 
posited Avith  their  banker,  and  collected  through  the  clearing- 
house. The  signature  of  the  drawer  proyed  to  be  a  forgery. 
As  the  discoyery  of  the  forgery  was  not  made  in  time  to  enable 
the  plaintiff  to  return  the  check,  as  of  absolute  right,  under 
the  rules  of  the  clearing-house,  we  think  the  case  must  stand 
as  if  the  payment  had  been  made  directly  at  the  plaintiff's 
counter,  in  the  ordinary  mode. 

''  The  right  of  return,  secured  by  the  rules  of  the  clearing- 
house, is  a  special  proyision,  in  compensation  for  payment 
without  inspection.  Instead  thereof,  the  rules  giye  opportunity 
for  subsequent  inspection.  When  that  has  been  had,  the 
special  rules  cease  to  govern ;  and  the  rights  of  the  paying  bank 
rest  upon  the  general  principles  of  law." 

§  354.  Clearing-house  member  representing  a  bank  not  a 
member. 

Where  a  bank,  which  is  a  member  of  a  clearing-house,  enters 
into  an  agreement  with  a  bank  not  a  member,  to  clear  for  it 
all  the  checks  of  the  latter,  where  the  latter  has  knowledge 
of  the  rules  of  the  clearing-house,  the  agreement  is  held  to  be 
a  tripertite  agreement  between  the  banks  and  the  association.^ 


9  O'Brien    et    al.    v.    Grant,    146       v.    Third    Nat.    Bank    of   Pittsburg, 
N.  Y.  163;  Farmers'  and  Merchants'       Appellant,  165  Pa.  St.  500. 
Bank  of  East  Birmingham,  to  use, 


556  Cleaeing-IIouse.  [ch.  xlvi, 

§  355.  How  clearing-house  may  sue  and  be  sued. 

A  clearing-house  is  not  a  corporation  nor  a  partnership  oi 
an  artificial  person,  but  is  an  association  represented  by  its 
tinstee,  and  its  committee  or  business  managers  may  sue  as 
trustees  to  collect  upon  securities  which  have  been  pledged  to 
the  clearing-house  to  secure  indebtedness  due  and  owing  by 
member  banks,  for  certificates  issued  for  their  benefit,  by  the 
clearing-house  committee. 

The  committee  hold  the  securities  as  trustees.  The  prop- 
erty is  pledged  to  them  as  security.^'' 

Bight  of  set-off,  when  may  he  denied. 

A  clearing-house  committee  holding  notes  for  value  and  as 
security  and  which  have  been  placed  with  it,  in  a  suit  to  recover 
thereon,  the  maker  is  denied  the  right  of  set-off. 

The  maker  has  no  right  to  set-off  against  the  note,  the 
amount  which  his  bank  owed  him  as  a  depositor.  ^^ 

§  356.  General  utility  of  clearing-house  and  its  incidental 
powers. 

The  purpose  of  the  clearing-house,  as  previously  stated,  is 
not  only  to  make  settlements  between  the  banks  who  are  mem- 
bers of  the  association,  but  to  give  aid  to  each  other  in  finan- 
cial stringencies.  The  clearing-house  may  be  called  a  financial 
regulator.  In  times  of  financial  disturbance  and  money  strin- 
gency, the  clearing-house  associations  have  demonstrated  their 
usefulness  to  the  country,  by  issuing  clearing-house  certificates 
which,  for  the  time  being,  met  the  emergency  of  the  occasion. 

During  the  currency  famine  of  1893,  it  was  clearly  demon- 
strated that  the  national  banking  system  was  very  defective 
in  elastic  powers.  The  failure  of  this  system  during  such  time, 
is  so  clearly  presented  by  John  DeWitt  Warner,  in  an  article 
prepared  by  him  and  published  by  the  Sound  Currency  Com- 
mittee of  the  Reform  Club,  February  15,  1895,  that  a  large 
portion  of  his  valuable  paper  entitled  '^  The  Currency  Famine 


lopiiillor  et  al.  v.  Patterson,  Ap-  n  Philler  ot   al.  v.  Jowett  &   Co. 

pcllant,  168  Pa.  St.  468.  Appellants,  166  Pa.  St.  4-56. 


CJi.XLvi.]  Banking.  557 

of  1893  "  is  here  given  space,  speaking  in  reference  to  the 
clearing-house  certificates  and  their  vahie  as  a  medium  of  cur- 
rency (but  not  to  be  used  as  such)  but  used  to  meet  the  de- 
ficiency of  the  national  bank  currency,  he  says". 

"  Our  laws  provided  but  one  resource  —  additional  issues 
of  national  bank  notes.  The  national  banks  were  urgently 
summoned  to  perform  their  most  important  legitimate  function 
—  that  of  giving  elasticity  to  a  currency  admittedly  rigid  at 
every  other  point.  The  only  result  was  to  demonstrate  the 
worthlessness  of  the  Xational  banking  system  itself. 

"  AYe  had  had  it  for  thirty  years.  Its  original  aim  had  really 
been,  not  to  provide  bank  note  currency  —  there  was  a  plethora 
of  that  when  the  national  banking  system  was  established  — 
but  rather  to  starve  the  business  public  into  purchasing  go'5?ern- 
ment  bonds  as  a  condition  of  being  permitted  to  do  business 
at  all. 

"  So  far  was  it  from  accommodating  itself  to  the  wants  of 
developing  communities  that  it  took  $11  in  funds  free  for 
investment  in  any  given  locality  to  secure  for  that  locality  $9 
in  currency.  So  far  was  it  from  expanding  to  meet  the  gi'owing 
demands  of  the  country  that,  while  twenty  years  ago  the  then 
outstanding  $340,000,000  of  national  bank  notes  represented 
more  than  45  per  cent,  of  all  our  circulation,  ten  years  later 
the  $347,000,000  of  similar  notes  then  outstanding,  repre- 
sented but  28  per  cent,  of  our  currency,  and  in  June,  1893  — 
the  latest  date  at  which  conditions  were  normal  —  the  $172,- 
000,000  of  national  bank  notes  then  in  circulation  outside  of 
the  Treasury  were  less  than  11  per  cent,  of  our  currency,  of 
which  they  had  ceased  to  be  a  material  factor. 

"  So  far  was  it  from  being  ela-stic,  that  we  had  come  to  ex- 
pect a  period  of  stringency  in  each  year  —  in  the  late  summer 
and  early  autumn  —  which  invariably  arrived ;  while  a  careful 
survey  of  the  course  of  our  national  bank  note  circulation,' 
showed  that  the  general  tendency,  at  first  to  its  increase  and 
afterward  to  its  withdrawal,  had  absolutely  no  connection  with 
present  or  prospective,  however  certain,  business  demands  for 
currency.  National  banks  had  long  since  ceased  even  pre- 
tended obedience  to  the  law,  and  habitually  made  discounts  in 
times  of  stringencv  in  the  face  of  depleted  reserves.  This 
practice  was  possible  because  the  initiative  was  in  the  hands 


558  Cleaking-House.  [ch.  xlvi- 

of  the  banks,  and  the  government  had  power  only  to  punish ; 
a  power  which  it  forebore  to  exercise. 

"  In  the  other  particular,  however,  that  of  furnishing  cur- 
rency, the  initiative  was  in  the  hands  of  the  Comptroller.  The 
banks  were  thus  powerless  to  break  the  law,  no  matter  how 
beneficient  might  have  been  such  violation.  And  nothing  is 
more  instructive  than  to  contemplate  the  futile  writhing  and 
contortions  of  our  national  bank-note  currency  system  in  the 
strait-jacket  with  which  it  had  been  pinioned,  and  to  see  tli;^ 
note  merely  inadequate,  but  positively  ludicrous,  results  of  its 
strenuous  efforts  to  respond  to  the  most  urgent  demands  for 
relief  that  this  generation  has  heard. 

"  The  increase  of  our  currency  by  additions  to  national  bank 
circulation  during  the  stringency  was  only  about  li  per  cent, 
and  was  far  less  than  the  amount  by  which  the  banks  of  a 
single  city  virtually  increased  it  by  clearing-house  certificates 
alone  —  little  more  than  half  the  amount  by  which  individual 
bankers  increased  it  by  actually  buying  gold  in  Europe  and 
shipping  it  hither  —  and  was  in  great  part  accomplished  only 
after  the  necessity  for  it  was  over,  millions  of  dollars  of  the 
additional  currency  taken  out  being  returned  to  the  treasury  witli 
the  packages  unbroken. 

"  It  "was  to  such  a  dead  fetich  that  our  stricken  business 
appealed  when  caught  in  the  panic  of  August,  1893.  Xever 
was  there  offered  a  more  conclusive  proof  of  the  self-reliance 
of  our  citizens  and  the  superiority  of  business  expedients  over 
government  direction.  Xot  merely  by  financiers  in  our  great 
cities,  and  by  great  corporations  experienced  in  handling  such 
crises  but  in  every  part  of  tlic  coimtry,  with  the  exception  of 
the  far  southwest,  did  the  people  work  out  their  own  salvation. 

Emergency  Currency. 

"  The  experience  of  August-September,  1893,  was  unique. 
There  Avas  no  gradually  developed  plans  for  mutual  assistance. 
Mutual  helpfulness  there  was  in  plenty  between  individuals 
and  localities;  but  it  was  in  prompt  response  to  sudden  appeals; 
and  before  any  general  system  could  be  devised,  the  occasion 
for  it  was  over.  Financial  clouds  had  long  been  lowering; 
but  it  was  within  a  single  month  that  the  currency  famine 


CH.  xLvi.]  Banking.  559 

became  general,  its  worst  effect  was  felt,  and  snch  relief  as  was 
extended  aided  the  crisis  over,  with  a  tendency  toward  a  glut 
of  circulating  medium. 

"  In  other  cases,  nations  or  communities  had  simply  found 
themselves  thrown  upon  their  own  resources.  Our  people 
found  themselves  not  merely  drained  of  currency,  but  for- 
bidden by  most  carefully  drawn  statutes,  to  utilize  the  ex- 
pedients which  would  have  teen  most  natural  and  most  effec- 
tive. Xo  civilized  nation  has  ever  experienced  such  a  cur- 
rency famine.  Xone  has  ever  found  itself  so  fettered  by 
positive  law  in  its  efforts  to  rescue  itself.  Kone  ever  so 
promptly  arose  to  the  emergency.  Xever  was  there  so  prompt 
a  return  to  normal  conditions. 

"  It  is  this  that  I  have  found  a  peculiarly  interesting  study. 
Xot  that  I  have  been  able  to  estimate  or  even  trace  it  in  any- 
thing like  full  measure.  One  of  its  most  striking  peculiarities 
was  the  extent  to  which  —  partly  on  accoimt  of  the  sudden- 
ness with  which  it  was  called  for  and  the  promptness  with 
which  the  need  of  it  was  over  —  partly,  perhaps,  because 
everyone  assumed  that  its  use  was  in  defiance  of  law  —  the 
actual  practice  in  each  locality  was  in  general,  unknown  out- 
side of  it,  and  evidence  and  mention  of  it  hard  to  secure  after- 
ward. 

"  The  specimens  I  quote  are,  therefore,  but  a  few  score  of 
the  hundreds  of  cases  that  careful  inquiry  would  reveal;  and, 
except  in  the  case  of  clearing-house  certificates  proper,  give 
but  a  faint  idea  of  the  extent  to  which  in  all  parts  of  the 
ccuntry  this  emergency  currency  sprang  into  being.  They  are, 
however,  I  trust,  sufficiently  varied  to  illustrate  the  methods  used 
and  the  more  characteristic  sorts  of  currency  —  as  distin- 
guished from  more  strictly  '  credit  '  expedients  —  that  were 
thus  called  into  being. 

CJearing-House  Certificates. 

"First  come  actual  clearing-house  certificates  —  new,  not 
in  invention,  but  rather  in  the  novel  extent  of  their  use.  Their 
office  was  simply  to  extend  indefinitely  the  brief  term  of 
mutual  credit  involved  in  all  clearing-house  settlements.  Con- 
tiary  to  the  general  impression,  they  were  not  used  as  cur- 


.'GO  Cleabixg-House,  [ch.  xlvi. 

rencv;  but  their  effect  was  to  add  just  their  face  to  the  volume 
of  currency  in  circulation,  by  releasing,  for  use  outside,  that 
which  would  otherwise  have  been  reserved  for  clearing-house 
settlements.  So  far  as  the  banks  using  them  transgTessed 
law,  it  was  in  renewing  loans  and  extending  discounts  when 
their  reserves  were  depleted  below  the  legal  limit.  The  use 
of  clearing-house  certificates  simply  enabled  this  to  be  done 
with  less  risk  of  other  than  legal  consequences. 

"And  to  the  w^riter,  not  the  least  interesting  of  the  data 
that  he  has  gathered  in  this  connection,  has  been  the  proof  — 
in  instance  after  instance  —  where  he  has  been  proudly  as- 
sured that  a  particular  city  had  not  been  forced  to  extraor- 
dinary expedientis  such  as  had  been  seized  upon  in  their 
desperation  by  less  favored  centers  —  either  that  the  boaster 
had  been  saved  by  aid  extended  by  those  whom  he  so  patron- 
izingly pities,  or  that  the  self-sufficient  town  had  already 
adopted  such  practices  that  its  ordinary  way  of  doing  business 
left  nothing  in  the  way  of  liberal  financiering  yet  to  be  ex- 
ploited. It  was  to  the  banks  that  did  use  clearing-house  certifi- 
cates in  the  emergency,  that  the  country  owes  its  escape  from 
unparalleled  disaster;  and  at  once  to  anticipate  and  answer 
all  inquiries  as  to  the  form  and  use  of  the  legitimate  clearing- 
house certificates,  I  append,  in  reduced  fac  simile,  copies  of 
specimens  from  each  city  where  they  were  used.  (See  pp. 
345  and  346.) 

"Denominations  were  as  follows:  Xew  York,  $20,000, 
$10,000  and  $5,000;  Philadelphia,  $5,000  only;  Boston, 
$10,000  and  $5,000;  New  Orleans,  $500  to  $10,000;  Balti- 
more, $G,000,  $3,000  and  $1,000 ;  Pittsburgh,  $10,000,  $5,000 
and  $1,000;  Detroit  $5,000  only;  Buffalo,  $5,000  and  $1,000. 
Tlieir  issue,  it  will  be  noticed,  was  mainly  in  the  Northeast, 
New  Orleans  being  the  only  Southern  and  Detroit  the  most 
AVestern  example.  And  in  each  case  it  will  be  observed  that 
use  of  the  certificate  is  limited  strictly  to  settlement  of  mutual 
accounts  between  members  of  the  clearing-house  association  in 
question." 

^\c  shall  not  attempt  to  give  in  reduced  fac  simile,  c<)pies  or 
specimens  of  all  the  clearing-house  certificates  referred  to  by 


<ji±.xLvr.i  il\is:KiXG.  561 

Mr.  Warner,  but  will  present  a  copy  as  nsed  by  the  clearing- 
house association  of  l^ew  York: 

No $20,000. 

LOAN  COMMITTEE  OF  THE  NEW  YORK  CLEARING- 
HOUSE ASSOCIATION. 

New  York ,  1893. 

THIS  CERTIFICATE,  that  the  has 

.  deposited  with  this  Committee,  securities  in  accordance  with 
OS  the  proceedings  of  a  Meeting  of  the  Association,  held  June  15th, 
^  1893,  upon  which  this  Certificate  is  issued.  This  Certificate 
g  for  the  sum  of  TWENTY  THOUSAND  DOLLARS,  from  any 
Q  will  be  received  in  payment  of  balances  at  the  Clearing-house 
Q   Member  of  the  Clearing-IIouse  Association. 

M       On  the  surrender  of  this  certificate 

p 

Q  by  the  depositing  banlv  above  named, 

E  the     Committee     will     endorse     the 

Eh 

^     amount  as  a  payment  on  the  obllga- 

y  tion  of  said  Banlc,  held  by  them,  and  Q 

^  i 

g   surrender  a  proportionate  share  of  the  z 

^  collateral  securities  held  therefor.  =: 

^  $20,000.  ? 


Other  deyices  in  similar  character  to  the  clearing-house  cer- 
tificate, were  used  during  the  currency  famine  of  1893,  such 
as  certified  checks,  pay  checks,  due-bills,  etc. 

It  is  conclusiye  from  the  facts  presented  by  Mr.  De  Witt 
Warner,  that  the  ISTational  banking  system,  during  a  seyere 
money  stringency,  is  not  clothed  with  the  power  to  pro- 
vide in  such  emergencies,  the  necessary  circulation,  its  elastic 
power,  such  as  it  possesses,  is  frequently  withdrawn.  By  the 
use  of  conservatiye  language,  it  may  be  said  that  the  system 
at  such  times  is  powerless  to  meet  the  emergency.  Therefore, 
the  clearing-house  under  its  implied  power,  it  has  been  found, 
may  provide  for  and  issue  clearing-house   certificates. 

They  do  not  circulate  as  money,  but  the  effect  is  practically 
the  same.     They  add  to  the  volume  of  currency,  to  the  sum 
or  amount  which,  in  their  absence,  would  be  required  in  cash 
to  make  the  settlements  between  clearing-house  banks. 
36 


562  Clearixg-House.  [ch.  xlvi. 

While  the  purpose  of  the  clearing-house,  as  stated,  was  not 
originally  organized  or  intended  to  be  put  to  such  use  through 
its  implied  or  incidental  power,  in  the  issuing  by  it  of  such 
certificates,  however,  by  the  use  of  such  means,  the  currency 
is  expanded  to  aid  the  circulating  medium  required  by  the 
country  in  extreme  financial  depressions. 

The  issuing  of  such  certificates  are  recognized  as  clearly 
within  the  law.  They  are  intended  to  be  used  only  as  instru- 
ments for  settlement  of  balances  between  banks  that  are  mem- 
bers of  the  clearing-house. 

The  issue  and  circulation  of  the  instrument  is  limited  be- 
tween the  parties.  They  are  not  intended  to  circulate  as 
money,  and  therefore,  as  previously  stated,  cannot  be  con- 
strued to  be  in  violation  of  the  constitution  relating  to  the 
issuing  of  instruments  as  bills  of  credit  and  intended  to  cir- 
culate as  money. 

In  a  review  of  the  usefulness  and  powers  of  the  clearing- 
house, it  is  found  to  be  a  great  convenience  to  banks  in  making 
settlements  between  them. 

It  may  also  receive  from  a  member  bank,  securities;  and 
upon  such  securities  make  advancements  to  aid  it  during  times 
of  depression. 

As  an  organization  through  its  committee,  it  may  enforce 
collection  upon  such  securities  where  they  have  passed  into 
the  clearing-house  for  value,  and  the  debtor  as  against  the 
bank  depositing  the  same,  has  no  right  of  set-off. 

It  may  also  issue  clearing-house  certificates  as  settlements 
for  balances  found  to  be  due  between  its  members,  and  they 
may  be  used  between  the  bank  as  a  payment  in  the  place  of 
cash. 

Banks  as  organizations  may  greatly  enlarge  their  usefulness 
to  each  other  and  the  public  in  general  by  urging  all  banking 
associations,  where  conveniently  located,  to  become  members, 
and  as  such,  report  their  condition  monthly  to  the  clearing- 
house committee. 


CHAPTER  XLVII. 


TRUST  COMPAKIES. 
§  357.  Distinguished  from  a  bank. 

The  powers  of  a  trust  compaiij  are  those  which  are  conferred 
upon  it  by  the  statute. 

The  extent  of  its  powers  in  business  and  acts  are  such  only 
as  are  specifically  granted  to  it  and  authorized  by  the  law.  It 
may,  when  authorized,  do  the  things  authorized  by  its  charter; 
but  it  has  no  incidental  or  implied  authority  to  transact  other 
business. 

It  is  a  trustee  and  is  bound  by  law  to  the  exercise  and  per- 
formance only  of  such  acts  as  are  delegated  to  it  by  the  exr 
pressed  and  necessarily  implied  provisions  of  the  law. 

It  differs  from  a  bank  in  this,  that  its  deposits  are  loans  to  it 
or  trust  funds  held  in  trust,  and  are  not  subject  to  check.  It 
has  no  poAver  to  issue  its  notes  for  circulation.  It  cannot  deal 
in  exchange,  make  discounts,  issue  letters  of  credit,  drafts,  or 
certificates  of  deposit. 

It  may  receive  moneys  in  trust,  and  when  so  received,  it 
must  preserve  them  as  trust  funds.  It  may  hold  the  same  and 
accumulate  the  same  at  an  agreed  rate  of  interest ;  and  may 
accept  and  execute  all  trusts  committed  to  it  by  persons,  cor- 
porations, and  courts  of  record;  and  receive  title  to  real  estate 
or  personal  estates  on  trust,  which  may  be  created  according  to 
the  laws  of  the  State;  and  may  also  act  as  agent  for  corpora- 
tions in  holding,  issuing,  registering,  and  transferring  stocks 
and  bonds;  but  its  functions  and  powers  are  not  banks  in  the 
etrict  commercial  sense  of  that  word.^ 

§  358.  Trust  companies  may  have  banking  powers. 

The  constitution  and  laws  of  the  State  govern  and  control 
this  privilege,  and  wdiere  banking  privileges  are  not  expressly 
granted,  the  business  of  banking  by  a  trust  company  cannot  be 
exercised.     Many  of  the  States  by  special  provisions  of  law 

1  Mercantile   Bank    r.   New   York,  121  U.  S.  138. 
[56.3] 


564  Trust  Companies.  [ch.  xlvii. 

liave  enacted  statutes  authorizing  this  privilege,  granting  to  a 
trust  com]')any,  in  connection  with  its  powers  as  such,  the  right 
to  conduct  a  banking  business.  But  this  power  must  be  ex- 
pressly authorized  bj  the  statute,  if  not,  the  power  does  not  exist 
by  implication.  Where  an  act  of  the  Legislature  authorizes 
the  creation  of  a  trust  company,  and  by  its  provisions  confines 
its-,  powers  to  be  those  of  executing  trusts,  and  does  not  in  the  act 
authorize  a  banking  business,  it  has  no  power  to  perform  such 
business  under  an  implied  authority  of  law. 

The  principle  of  law  governing  a  trustee  who  accepts  a  trust, 
will  not  permit  the  trustee  to  speculate  with  the  trust  property; 
or  to  retain  the  profits  made  by  the  use  of  the  same,  A  trustee 
is  compelled  by  law  to  account  for  and  pay  over  to  the  cestui 
que  tjnist  all  profits  made  by  the  use  of  any  trust  property. 

The  doctrine  is  also  settled  that  a  trustee  cannot  become  a 
purchaser  at  his  own  sale  without  special  permission  or  au- 
thority given  by  a  court  of  competent  jurisdiction.^ 

A  purchase  by  a  trustee  of  property  for  his  own  benefit  is 
not  absolutely  void  but  voidable;  and  may  be  confirmed  by  the 
parties  interested,  either  directly  or  by  long  acquiescence,^ 

It  will  be  seen  that  the  business  of  banking  and  that  of  a 
trust  company  are  governed  and  controlled  upon  almost  di- 
rectly opposite  principles  of  law.  A  banker  may  make  profit 
out  of  money  received  upon  an  open  account,  and  may  also  buy 
property  at  his  own  sale.  lie  may  also  issue  drafts,  certificates 
of  deposit,  letters  of  credit,  and  discount  notes.  Where  funds 
are  deposited  in  a  commercial  bank  upon  an  open  account,  the 
bank  at  once  becomes  a  debtor  for  the  same.  While  the  de- 
posit of  funds  in  a  trust  company  cannot  be  intermingled  with 
other  funds  and  must  be  held  in  trust,  neither  can  they  be  used 
for  profit,  except  as  may  be  expressly  agreed  upon  between  the 
parties  and  as  authorized  by  law. 

Where  the  statute  permits  a  trust  company  to  do  a  banking 
business,  a  provision  of  law  should  always  be  enacted,  requiring 
that  a  separate  set  of  books  should  be  kept ;  and  no  interming- 
ling of  the  commercial  and  trust  funds  should  be  permitted. 
The  principle  of  combination  or  dual  authority,  allowing  a  trust 

2  Allen  V.  Gillette,  127  U.  S.  589.  sHamniond  v.  Hopkins,  143  U.  S. 

224, 


CH.  XLVii.]  Banking.  5(55 

company  to  do  a  banking  business,  is  inconsistent  and  as  pre- 
viously stated  should  not  be  permitted  unless  expressly  author- 
ized by  law. 

The  question  of  authority  under  the  constitution  and  statute, 
of  a  trust  company  organized  under  the  laws  of  the  State  of 
Missouri  to  do  a  banking  business,  is  ably  and  profoundly  dis- 
cussed in  the  case  of  State  ex.  inf.  v.  Lincoln  Trust  Co.,  144 
Mo.  562. 

In  this  case  the  Lincoln  Trust  Company  was  duly  incorpo- 
rated under  the  acts  of  the  Legislature  enacted  in  1889  and 
amendments  thereto  passed  in  1891, 

The  company  claimed  the  authority  under  its  charter  and 
incidentally  under  the  laws  enacted  to  conduct  a  banking  busi- 
ness in  connection  with  its  trust  business,  and  at  the  time  of 
bringing  the  action  by  the  Attorney-General  in  behalf  of  the 
people,  it  was  conducting  in  addition  to  a  trust  business  a  bank- 
ing business. 

The  case  is  a  very  important  one,  as  it  involves  the  construc- 
tion of  the  powers  under  the  act  creating  and  authorizing  trust 
companies ;  and  also  distinguishes  the  business  of  banking  from 
that  exercised  by  trust  companies. 

The  general  rule  as  announced  by  the  Supreme  Court  of  the 
ITnited  States,  in  the  case  of  Thomas  v.  Railroad,  101  L^.  S.  71, 
is  as  follows:  *' The  powers  of  corporations,  organized  under 
legislative  statutes,  are  such  and  such  only  as  those  statutes 
confer.  Concerning  the  rule  applicable  to  all  statutes,  that 
which  is  fairly  implied  is  as  much  granted,  as  what  is  expressed, 
it  remains  that  the  character  of  a  corporation  is  the  measure  of 
its  power,  and  that  the  enumeration  of  these  powers  excludes  all 
others."  * 

It  is  held  in  the  case  of  State  ex.  inf.  v.  Lincoln  Trust  Com- 
pany, where  the  statute  permitted  trust  companies  to  receive 
money  on  deposit,  and  allow  interest  on  the  same,  that  the 
money  might  be  returned  or  paid  upon  check  issued;  but  that 
the  company  could  go  no  further,  it  must  confine  its  privileges 
to  the  language  of  the  statute  which  permitted  such  companies 
to  receive  money  on  deposit  and  pay  interest  on  the  same. 

In  the  case  of  Mercantile  Bank  v.  ISTew  York,  121  IT.  S.  138, 
the  court  in  determining  the  question  of  taxation  had  occasion 

*  Coolidge    V.    Williams,    4    Mass.  140. 


56G  Trust  Companies.  [ch.  xlvii. 

to  say  after  enumerating  tlie  powers  conferred  upon  trust  com- 
panies bv  the  Legislature  of  that  State  that,  "^  It  is  evident  from 
this  enumeration  of  powers  that  trust  companies  are  not  banks 
in  the  commercial  sense  of  that  word,  and  do  not  perform  the 
functions  of  banks  in  carrving  on  the  exchange  of  commerce." 
The  "powers  granted  by  the  statute  authorizes  trust  companies 
to  receive  moneys  on  trust,  but  does  not  authorize  them  to  con- 
duct a  banking  business,  to  make  loans  on  personal  notes,  or  to 
discount  or  purchase  negotiable  paper.^ 

Bide  determining  auihorHy  or  power. 

To  determine  ichether  trust  companies  have  hanking  powers 
reference  must  he  had  to  the  charter  of  the  company;  if  incor- 
porated under  a  special  act,  and  if  such  act  does  not  authorize 
the  conducting  of  a  hanking  husiness,  the  charter  cannot  confer 
such  a  power,  though  it  is  set  out  and  grafted  therein  The 
statute  is  tlie  measure  of  authority. 

AYhere  there  is  no  special  statute  empowering  and  authoriz- 
ing the  formation  of  trust  companies,  such  corporations  may  be 
formed  and  organized  under  the  general  incorporation  laws  of 
the  State;  and  may  conduct  any  lawful  business  permitted  by 
law;  but  where  there  is  a  special  act  of  the  Legislature,  author- 
izing the  formation  of  trust  companies,  the  incorporation  must 
be  formed  under  and  controlled  by  its  provisions. 

In  the  absence  of  authority  in  the  act  authorizing  the  business 
of  banking  in  connection  "v\"ith  its  business  of  executing  trusts, 
the  law,  as  previously  stated,  does  not  imply  such  authority. 

5  Jenkins  r.  Neff,  186  U.  S.  230. 


CHAPTER  XLVIII. 


INSPECTION  AND  EXAMINATION  OF  BANKS. 
§  359.    Checking  up  a  bank. 

Section  52-iO,  Revised  Statutes  of  the  United  States,  provide 
that  the  Comptroller  of  the  Currency,  with  the  approval  of  the 
Secretary  of  the  Treasury,  shall  appoint  suitable  persons  to 
make  examination  of  the  affairs  of  all  the  national  banking 
associations  located  within  the  States  and  Territories. 

The  Act  of  February  19th,  1875,  provides  the  compensation 
of  the  examiners. 

State  banks  organized  or  doing  business  in  a  State  are  usually 
placed  under  the  supervision  of  a  commission  designated  as, 
*'  Bank  Commissioners,"  who  are  appointed  by  the  Governor 
and  confirmed  by  the  Senate. 

A  Comptroller  of  the  Currency,  in  discussing  the  usefulness 
of  this  office,  says,  '^  Perhaps  no  one  thing  has  done  more  to 
promote  the  safety  and  sound  management  of  national  banks 
than  their  liability  to  examination,  without  previous  notice,  by 
an  agent  appointed  for  that  purpose,  and  probably  no  provision 
of  the  law  was  more  unpopular  among  the  banks  when  the  law 
first  went  into  effect;  but  the  good  results  brought  about  di- 
rectly and  indirectly  by  such  examinations  have  fully  vindi- 
cated the  wisdom  of  the  provision." 

The  position  and  office  of  Bank  Examiner  is  one  of  great 
value  and  responsibility.  Criticisms  are  frequently  heard  and 
expressed  that  bank  examinations  are  of  no  value,  that  the 
commission  is  an  unnecessary  expense  placed  upon  banks  and 
that  the  good  derived  from  the  examination  does  not  justify  the 
cost. 

It  is  true  that  the  experience  with  the  adopted  system  of 
examination  has  been  unfortunate  in  many  cases.  But  the 
great  good  performed  by  the  examination  is  seldom  given  to 
the  general  public. 

The  reason  that  examinations  are  regarded  as  formal  and 
worthless,  arises  from  the  fact  that  where  a  bank  fails  the 
public  generally  overlook  the  fact  that  the  failure  was  brought 
about  by  acts  which  could  neither  l)e  detected  by  an  expert,  or 

[567] 


568  l.NsrECTIOX  AXD  Ex.\.MIXATIOX  OI-  BAXKf>.     [cil.  XLVIII. 

prevented  by  an  officer  of  the  law,  or  the  prohibition  of  the  law 
itself. 

The  largest  and  most  dangerous  failures  are  those  produced 
by  the  bank's  officers  falsifying  the  books  and  robbing  the 
"  tills."  These  conditions  or  acts  usually  occur  during  the 
interim  of  examinations,  and  therefore  could  not  be  detected. 

The  difficulty  is  that  examinations  are  made  too  hurriedly, 
and  the  Avork  which  the  law  requires  to  be  done  A^thin  a  given 
time,  compels  the  examiner  to  rapid  efforts,  and  some  seemingly 
small  matter  may  be  overlooked  which,  if  sufficient  time  was 
allowed,  could  and  would  have  been  detected  and  a  great  failure 
averted. 

The  value  of  an  examination  made  by  a  person  that  has  no 
knowledge  of  local  conditions  cannot  be  wholly  relied  upon. 
An  examination  being  made  by  a  stranger  who  cannot  be 
familiar  A^^ith  the  business  paper  of  the  place,  does  not  make 
discounts  and  assets  good  which  are  worthless. 

The  inspection  should  be  thorough  and  should  amount  to  an 
auditing  of  the  entire  business  of  the  bank.  This  would  re- 
quire the  appointment  of  expert  accountants.  The  examina- 
tions also  should  be  more  frequent  and  could  be  more  success- 
fully performed  if  the  examiner  had  full  power  to  call  in  the 
beard  of  directors,  requiring  them  to  remain  in  session  while 
the  examination  was  in  progress.  The  directors,  if  required 
to  be  present,  could  verify  the  authority  for  making  and  dis- 
counting loans  and  be  called  upon  to  report  upon  each  trans- 
action, loan,  or  discount,  and  its  value  as  a  resource  of  the  bank. 

To  make  a  thorough  and  complete  examination  of  the  condi- 
tion and  all  the  affairs  of  the  bank,  the  examiner  should  enter 
the  bank  either  immediately  after  the  close  of  business  for  the 
day,  or  at  such  an  hour  before  commencement  of  the  business 
of  the  day,  as  would  permit  him  to  take  possession  of  the  entire 
assets  of  the  bank.  The  first  thing  to  be  done  is  to  place  the 
officers  or  officer  in  charge  of  and  manag-ing  the  bank  under 
oath,  requiring  them  to  truly  answer  all  questions  that  may  be 
put  to  them  by  the  commissioner  or  commissioners,  concerning 
the  affairs  of  the  bank,  the  character  and  value  of  its  assets,  and 
amount  of  its  liabilities,  neither  misrepresenting  nor  concealing 
anything  relative  to  the  true  conditon  of  the  bank. 


en.  xLviii.]  Baxking.  569 

The  cash  in  the  hands  of  the  teller  or  tellers  should  then  be 
immediately  counted,  the  amount  found  to  be  in  the  hands  of 
each  one  should  be  noted  as  cash  in  the  hands  of  first, 
second,  and  third  paying  or  receiving  teller,  etc.,  and  at  the 
same  time  an  itemized  list  of  all  cash  items  held  by  them 
should  be  separately  taken  and  carefully  examined,  as  these 
form  a  part  of  and  (if  solvent)  are  added  to  and  counted  as  cash. 

Cash  items,  checks,  including-  clearing-house  certificates,  in 
the  hands  of  the  tellers  liaving  been  taken,  separately  listed, 
ard  carefully  compared  with  the  ledger  statement,  each  item 
having  been  found  to  be  regular,  these  added  to  the  tellers' 
cash,  together  with  the  cash  in  the  hands  of  the  cashier  or  casli 
in  the  vault,  which  has  been  counted,  make  up  the  total  cash 
on  hand  and  as  shown  per  general  ledger. 

If  one  examiner  is  making  the  examination,  the  bills  receiv- 
able, together  with  the  stocks  and  bonds,  are  immediately  after 
counting  of  cash  taken  into  his  possession,  and  are  placed  under 
seal  of  the  commissioner  until  such  a  time,  as  he  may  be  able 
to  list  every  piece  of  paper  and  loan  held  by  the  bank. 

The  commissioner  may  then  take  a  skeleton  proof  from  the 
general  ledger  of  all  resources  and  liabilities  and  the  subsequent 
examinations  can  be  based  upon  this  statement,  taken  item  by 
item. 

The  assets  may  then  be  examined  and  proved  as  they  appear 
upon  the  skeleton  statement.  The  real  estate  owned  by  the 
bank  taken  for  debt,  including  that  used  as  bank  premises, 
should  be  listed.  Title  abstract  should  accompany  each  piece 
of  property,  and  these  will  show  the  cost  of  the  same,  and  date 
when  taken  by  the  bank,  and  if  carried  above  its  value  the  excess 
should  be  charged  off.  The  stocks,  bonds,  and  warrants,  are 
also  listed.  This  should  be  done  so  the  examiner  may  deter- 
mine whether  the  bank,  if  it  is  a  savings  bank,  has  violated  the 
law  in  owning  or  holding  securities  which  are  prohibited  by 
law. 

The  loans  usually  are  the  most  important  part  of  the  assets 
of  the  bank,  and  a  full  and  complete  list  should  be  taken,  to- 
gether with  a  list  of  indorsers  and  collaterals.  Each  piece  of 
paper  should  receive  the  personal  examination  of  the  commis- 
sioner, and  during  the  investigation  and  listing  one  or  more  of 
the  officials  of  the  bank,  who  have  a  personal  knowledge  of  the 


570  INSPECTION  AND  EXAMINATION  OP"  BaNKS.     [cH.  XLVIII. 

genuineness,  and  value  of  the  same,  should  be  present  that  the 
commissioner  may  have  such  facts  verified. 

There  are  many  instances  of  extensive  frauds  which  have 
been  committed,  by  means  of  loans  that  were  never  authorized 
by  the  board  of  directors,  and  during  the  process  of  listing  the 
notes,  questions  directed  to  the  officer  as  to  their  genuineness  — 
the  unauthorized  or  forged  loans  may  be  brought  to  light. 

The  examiner  cannot  detect  forged  paper  where  the  same 
appears  to  be  regular  upon  its  face,  but  he  can  do  his  duty  In- 
placing  the  officer  in  charge  of  the  same,  and  who  had  authority 
in  the  first  instance  to  accept  or  make  loans,  upon  oath  as  to 
tJieir  value  and  genuineness.  By  listing  the  loans  and  dis- 
counts, the  examiner  can  ascertain  the  amount  borrowed  by  the 
officers  and  directors,  and  for  which  they  are  personally  liable. 
From  the  list  it  can  also  be  ascertained  whether  or  not  the  bank 
(if  a  savings  bank)  has  complied  with  the  law  in  making  its 
investments  in  securities  authorized  by  law. 

The  stocks,  l)onds,  and  w^arrants  when  listed,  their  character, 
value,  and  genuineness  should  be  determined.  Xational  banks 
are  prohibited  by  law  from  purchasing,  and  holding  as  an  in- 
vestment stocks  of  other  corporations;  likewise  savings  banks 
are  prohibited  by  law,  from  investing  in  certain  stocks  and 
bonds. 

Overdrafts  as  a  resource  are  a  dangerous  class  of  loans.  The 
authority  for  their  creation  may  also  be  a  question,  which  the 
examiner  should  carefully  investigate;  for  example,  wdiere  a 
firm  or  corporation  doing  business  with  a  bank,  overdraws  its 
account,  the  examiner  should  in  every  instance  ascertain  the 
authority  for  creating  the  same.  All  overdrafts  should  be 
listed;  the  date  of  the  overdrafts  and  the  amounts  drawn;  and 
the  person  creating  the  same  should  be  called  into  the  bank  to 
verify  the  correctness  of  the  account,  and  be  required  to  secure 
the  bank  against  the  sums  so  drawn,  as  overdrafts  are  unlawful, 
unless  granted  upon  collateral  security  deposited  with  the  bank. 

Resources,  due  from  banks,  are  assets  that  may  be  accurately 
verified  and  proved  by  writing,  or  wiring,  correspondents;  stat- 
ing the  balance  shown  to  be  due  from  them  on  a  certain  day, 
and  requesting  a  verification. 

When  all  of  the  bank's  assets  have  been  listed,  proven,  and 
verified,  with  the  books,  and  the  sum  total  of  th-eir  value  is 


CH.  XLVIII.]  Ba>,kixg.  571 

fixed  and  determined  hx  the  examiner,  the  bank's  liabilities  are 
to  be  checked  and  pro^'en. 

The  liabilities  consist  first,  of  capital  stock,  which  can  be 
proven  by  listing  the  stock  issued,  taking  the  certificate  book 
and  checking  from  it  (the  stnb)  the  number  of  the  certificate, 
name  of  party  to  whom  issued,  together  with  the  number  of 
shares,  and  the  amount  paid  on  each  share. 

The  deposits,  or  the  amount  due  depositors,  can  only  be 
proven  accurately  by  balancing  and  checking  up  each  indi- 
vidual account,  and  proving  the  same  with  the  ledger.  This 
practice  is  not  followed;  and  the  ledger  account  showing  a 
total  of  deposits  due,  is  usually  accepted  as  correct.  Quite 
frequently  the  examiner  will  call  in  a  number  of  pass  books, 
and  balance  them,  verifying  the  accuracy  of  the  ledger  to  that 
extent;  but  farther  than  this  the  examiner  seldom  extends  this 
branch  of  the  examination.  Certificates  of  deposit  can  be 
proven  in  several  ways;  but  the  one  usually  followed  is  to  list 
by  number  all  outstanding  certificates,  showing  the  amount  due 
upon  each  certificate,  cheeking  back  from  the  ledger  and  cer- 
tificate book  all  paid  certificates  previously  issued  by  the  bank. 

Due  banks,  as  a  liability,  consists  of  all  moneys  borrowed  and 
received  from  all  sources.  Liabilities  of  this  nature  can  only 
bo  proven  correctly  by  wiring  for  a  verification  of  the  account. 

N"otes  and  bills  rediscounted,  are  under  the  national  banking 
rules  held  to  be  liabilities.  They  are,  however,  not  construed 
by  the  Federal  courts  as  immediate  liabilities  of  the  bank,  as 
they  may  never  ripen  into  a  debt,  and  rediscoimts  are  classed 
as  notes  or  bills  sold.  They  arc,  however,  listed  as  a  liability, 
and  are  required  to  be  reported  by  the  Comptroller  of  the  Cur- 
rency in  all  reports  made  to  him. 

Bills  payable  represent  money  borrowed  by  the  bank.  Such 
liabilities  should  receive  a  careful  investigation,  in  order  to 
determine  the  authority  for,  and  the  necessity  for,  borrowing 
money.  This  authority  should  emanate  from  the  board  of 
directors,  money  borrowed  by  the  president,  or  cashier,  of  the 
bank,  unless  authorized,  is  unlawful. 

Dividends  unpaid  are  a  liabilitv  of  the  bank  until  distributed, 
unless  they  have  been  unlawfully  declared.  A  dividend  cannot 
be  declared  only  from  the  profits  arising  out  of  the  business, 
and  after  all  the  expenses  and  other  requirements  of  the  law 


572  l^-sPECTIox  axd  Examixatiox  of  Banks,    [en.  xlviii. 

have  been  first  complied  with.  A  dividend  cannot  be  declared 
out  of  the  capital  stock,  and  if  npon  an  examination  of  the  bank, 
it  is  found  that  the  capital  stock  is  impaired,  no  dividend  can 
be  declared  until  it  has  been  made  whole. 

Surplus  fund.  Where  the  law  requires  that  a  certain  por- 
tion of  the  earnings  of  the  bank  shall  at  stated  periods  be  car- 
ried to  a  surplus  fund,  a  dividend  cannot  be  declared  from  the 
earnings  until  this  has  been  done. 

Undivided  profits  are  all  of  the  net  earnings  of  the  bank, 
which  mav  be  declared  as  a  dividend,  and  then  distributed  to 
the  stockholders. 

When  all  of  the  liabilities  have  been  discovered,  and  listed, 
in  order  to  determine  the  condition  of  the  l)ank.  the  question 
of  determining  its  solvency  or  insolvency  is  one  which  is  re- 
duced to  the  sound  judgment  of  the  examiner.  He  must  pass 
upon  many  important  matters.  The  main  question  to  be  de- 
termined, is  seemingly  simple,  in  its  statement;  but  more  diffi- 
cult and  complicated  when  a  report  is  to  be  made  which  must 
show  the  bank's  actual  contition.  If  the  assets  as  scheduled, 
and  shown  by  the  books  of  the  bank,  are  solvent,  and  the 
balance  is  found  to  be  equal  to  all  of  the  liabilities  no  doubt 
can  exist,  but  frequently  the  assets  are  scaled  down  mitil  it 
becomes  a  question  of  serious  import  to  the  examiner,  and 
when  such  a  close  crisis  is  reached,  it  becomes  a  matter  of 
opinion,  and  experts  and  persons  of  extremely  sound  judgment 
may  then  differ.  But  it  is  always  best  if  error  is  made,  to 
make  it  rather  in  favor  of  the  creditors  of  a  bank,  and  if  a 
bank's  solvency  hangs  in  the  balance,  the  judgment  of  the 
commissioner,  rather  than  that  of  the  officers  of  the  bank 
should  prevail. 

§  360.     Reports  required   of  hanks. 

The  law  authorizing  and  governing  national  banks  requir- 
ing reports,  is  set  out  in  the  Revised  Statutes  of  the  United 
States  as  provided  by  section  5211,  which  requires  that, 
"  Every  association  shall  make  to  the  Comptroller  of  the  Cur- 
rency not  less  than  five  reports  during  each  year,  according 
to  the  form  which  may  be  prescribed  by  him,  verified  by  the 
oath  or  affirmation  of  the  president  or  cashier  of  such  associa- 
tion, and  attested  by  the  signature  of  at  least  three  of  the 


CH.  XLviii.]  Banking.  573 

directors.  Each  report  shall  exhibit,  in  detail  and  under  ap- 
propriate heads,  the  resources  and  liabilities  of  the  associations 
at  the  close  of  business  on  any  past  day  by  him  specified,  and 
shall  be  transmitted  to  the  Comptroller  within  five  days  after 
the  receipt  of  a  request  or  requisition  therefor  from  him,  and 
in  the  same  form  in  which  it  is  made  to  the  Comptroller  shall 
be  published  in  a  newspaper  published  in  the  place  where  such 
association  is  established,  or  if  there  is  no  newspaper  in  the 
place,  then  in  one  published  nearest  thereto  in  the  same  county, 
at  the  expense  of  the  association;  and  such  proof  of  publica- 
tion shall  be  furnished  as  may  be  required  by  the  Comptroller. 
The  Comptroller  shall  also  have  power  to  call  for  special 
reports  from  any  particular  association  whenever  in  his  judg- 
ment the  same  are  necessary  in  order  to  a  full  and  complete 
knowledge  of  its  condition." 

And  section  5212  requires,  that  every  such  association  shall 
within  ten  days  after  declaring  a  dividend,  the  amount  of  the 
same,  and  the  amount  of  the  net  earnings  in  excess  of  the 
same,  shall  be  reported  to  the  Comptroller  of  the  Currency. 
These  reports  must  be  attested  by  the  president  or  cashier  of 
the  association. 

Section  5213  provides,  that  for  a  failure  to  make  reports 
as  called  for  by  sections  5211  and  5212,  such  associations  shall 
be  liable  to  a  penalty  of  one  hundred  dollars  for  each  day 
after  such  period.  "When  a  call  is  made  by  the  Comptroller 
of  the  Currency  for  a  report;  a  form  printed  by  the  Comp- 
troller is  usually  furnished,  if  not,  an  application  should  be 
immediately  made  to  him  for  such  printed  form,  as  all  written 
forms  used  will  be  rejected. 

When  the  report  is  completed  it  must  be.  signed  and  sworn 
to  by  the  president  or  cashier,  and  attested  as  correct  by  not 
less  than  three  of  the  directors  of  the  bank,  and  when  so  com- 
pleted, it  must  be  forwarded  to  the  Comptroller.  The  report 
forwarded,  or  an  exact  copy  thereof,  must  be  published  as 
required  by  law,  and  proof  of  publication  forwarded  to  the 
Comptroller. 

In  addition  to  the  reports  above  mentioned  section  5210  of 
the  statute  requires  that  "  The  president  and  cashier  of  every 
national  banking  association  shall  cause  to  be  kept  at  all  times 
a  full  and  correct  list  of  the  names  and  residences  of  all  the 


574         Inspection  and  Examination  of  Banks,    [en.  xlviii. 

sbareliolders  in  the  association,  and  the  nnniLer  of  shares  hehl 
by  each,  in  the  office  where  its  business  is  transacted.  Such 
list  shall  be  subject  to  the  inspection  of  all  the  shareholders 
and  creditors  of  the  association,  and  the  officers  authorized  to 
assess  taxes  under  State  authority,  during  business  hours  of 
each  day  in  which  business  may  be  legally  transacted.  A 
copy  of  «uch  list,  on  the  first  Monday  of  July  of  each  year, 
verified  by  the  oath  of  such  president  or  cashier,  shall  be  trans- 
mitted to  the  Comptroller  of  the  Currency." 

There  is  no  uniform  law  of  the  States  requiring  State  banks 
to  make  and  publish  reports,  but  the  value  of  such  a  law,  re- 
quiring such  reports  can  not  be  overestimated. 

The  form  and  plan  adopted  by  the  United  States,  which  is 
required  to  be  made  by  national  banks,  is  very  complete,  and 
every  State  in  the  Union  should  have  enacted  a  law  requiring 
reports  to  be  made  and  published. 

The  verification  of  the  report  should  be  made  by  the  board 
of  directors,  or  a  majority  of  them,  and  attested  by  the  presi- 
dent or  cashier.  Bj'  the  adoption  of  this  rule  the  directors 
would  be  required  to  expert  the  affairs  of  the  bank,  and  not 
rely  upon  the  examination  and  report  made  by  the  officers. 
Such  a  law  would  insure  the  examination  of  the  bank  by  the 
board  of  directors,  and  would  compel  them,  under  penalty,  to 
perform  a  duty  which  is  impliedly  their  duty  to  perforin  by 
Anrtue  of  their  office. 

The  reports  should  be  called  by  the  bank  commissioners, 
or  authority  in  control  of  the  banks,  as  to  the  condition  of  the 
banks  at  the  close  of  business  on  some  date  prior  to  the  date 
of  the  call.  There  should  be  not  less  than  six  calls  during  the 
period  of  one  year.  It  has  been  found  that  through  the  sys- 
tem of  frequent  calls,  the  banks  which  are  required  by  law 
to  exhibit  the  full  amount  of  reserve  can  not  so  easily  violate 
this  provision. 

Monthly  reports  have  been  recommended  by  some  authori- 
ties, but  the  necessity  of  such  frequent  reports  does  not  seem 
to  be  apparent,  except  between  banks  having  mutual  accounts, 
or  clearing-house  banks,  Avhich  are  required  by  the  rules  in 
most  cities,  to  make  weekly  reports  which  are  furnished  for 
the  benefit  of  the  members. 


cii.  xLviii.]  Ba^-kixg.  575 

§  361.     Suggestions  to  examiners. 

Tlie  examinations  made  of  banks  fail  in  many  instances  to 
disclose  the  real  conditions  existing  and  avert  failures.  The 
best  accountants  and  experts  are  frequently  deceived,  as  the 
record  of  failures  which  occur  fully  demonstrate. 

It  is  a  lamentable  fact,  that  the  most  serious  failures  are 
those  caused  directly  by  the  officers  who  preside  over,  and 
have  the  management  of  the  bank's  affairs.  These  failures 
occur,  as  a  rule,  in  banks  where  the  board  of  directors  are 
mere  "  dummies,"  and  where  they  have  grossly  neglected  to 
perform  their  duties. 

The  most  notable  bank  failures  may  be  traced  to  one  or 
two  causes;  the  principal  cause  is  the  result  of  illegitimate 
use  of  the  bank's  funds,  taken  by  some  officer  of  the  bank  and 
used  in  speculation.  This  is  the  rock  upon  which  has  been, 
wrecked  many  of  the  strongest  banking  institutions,  and  bank 
examiners  should  be  able  to  discern  and  observe  the  danger 
signals.  They  can  be  discovered  by  a  careful  investigation 
into  the  personal  habits  and  business  enterprises  engaged  in 
by  the  officers  and  employees  of  the  bank. 

It  should  be  an  important  part  of  the  duties  which  are  im- 
posed upon  the  examiner  to  quietly  and  judiciously  make  in- 
vestigations along  this  line.  If  upon  a  thorough  examina- 
tion into  the  life,  and  habits,  or  business,  of  an  officer  in 
charge  of  and  handling  the  funds  of  the  bank,  the  examiner 
becomes  satisfied  that  the  bank  is  endangered,  being  in  pos- 
session of  the  facts,  he  should  call  a  meeting  of  the  board  of 
directors  and  disclose  to  them  his  information,  together  with 
the  possibility  of  danger.  AVhen  this  duty  is  performed,  it 
then  becomes  the  personal  duty  of  the  board  of  directors  to 
make  a  full  and  complete  investigation  of  all  the  facts  pre- 
sented to  them,  and  if  they  find  that  the  bank's  property  or 
the  funds  and  deposits  belonging  to  others,  are  being  en- 
dangered by  and  through  the  business  acts  or  personal  habits 
of  any  of  the  bank's  officers  or  employees,  it  becomes  their 
duty  (being  in  possession  of  such  knowledge)  to  take  action 
at  once  to  protect  the  bank  from  the  possible  occurrence  of 
loss  and  damage  to  the  bank;  failing  to  do  this  and  loss  occur- 
ring, which  by  their  action  could  have  been  prevented,  they 
themselves  become  personally  liable. 


APPENDIX. 


The   iSTatioxal   Banking   Act   as   Amended^  with    Other 
Laws  Relating  to  National  Banks. 

[Note. —  The  following  are  the  acts  relating  to  national  banks.] 

THE  CURRENCY  BUREAU. 

1.  The  national-bank  act.  7.  Office   clerks. 

2.  Comptroller  of  the   Currency.  8.  Seal  of  office. 

3.  His       appointment,       term,      and         0.  Offices,  vaults,  etc. 

salaiy.  10.  Annual  report. 

4.  His   qualification.  11.  \Mien  report  is  printed. 

5.  Deputy  Comptroller.  12.  Number  of  copies  to  be  printed. 

6.  Interest    in    national  banks    pro- 

hibited. 

1.  The  JSTational-Bank  Act. —  Sec.  1  of  the  act  of  June 
20,  1874,  provides  that  the  act  entitled  "An  act  to  provide  a 
national  currency  secured  by  a  pledge  of  United  States  bonds, 
and  to  provide  for  the  circulation  and  redemj)tion  thereof," 
approved  June  third,  eighteen  hundred  and  sixty-four,  shall 
hereafter  be  known  as  the  -'Xational-Bank  Act." 

2.  Comptroller  of  the  Currency.  (Sec.  324.)  There 
shall  be  in  the  Department  of  the  Treasury  a  Bureau  charged 
with  the  execution  of  all  laws  passed  by  Congress  relating  to  the 
issue  and  regulation  of  a  national  currency  secured  by  United 
State  bonds,  the  chief  officer  of  which  Bureau  shall  be  called 
the  Comptroller  of  the  Currency,  and  shall  perform  his  duties 
under  the  general  direction  of  the  Secretary  of  the  Treasury. 

3.  Appointment,  Term,  and  Salary.  (Sec.  325.)  The 
Comptroller  of  the  Currency  shall  be  appointed  by  the  Presi- 
dent, on  the  recommendation  of  the  Secretary  of  the  Treasury, 
by  and  with  the  advice  and  consent  of  the  Senate,  and  shall 
hold  his  office  for  the  term  of  five  years,  unless  sooner  removed 
l)y  the  President,  upon  reasons  to  be  conunimicated  by  him  to 
■the  Senate;  and  he- shall  be  entitled  to  a  salary  of  five  thousand 
dollars  a  year. 

zi  [577] 


578  Appendix. 

4.  His  Qualificatiox.  (Sec.  326.)  The  Comptroller  of 
the  Currency  shall,  within  fifteen  days  from  the  time  of  notice 
of  his  appointment,  take  and  subscribe  the  oath  of  office;  and 
he  shall  give  to  the  United  States  a  bond  in  the  penalty  of  one 
hundred  thousand  dollars,  with  not  less  than  two  responsible 
sureties,  to  be  approved  by  the  Secretary  of  the  Treasury,  con- 
ditioned for  the  faithful  discharge  of  the  duties  of  his  office. 

5.  Deputy  Compteoller.  (Sec.  327.)  There  shall  be  in 
the  Bureau  of  the  Comptroller  of  the  Currency  a  Deputy  Comp- 
troller of  the  Currency,  to  be  appointed  by  the  Secretary,  who 
shall  be  entitled  to  a  salary  of  two  thou-and  eight  hundred 
dollars  a  year,  and  who  shall  possess  the  power  and  perform 
the  duties  attached  by  law  to  the  office  of  Comptroller  during 
a  vacancy  in  the  office  or  during  the  absence  or  inability  of  the 
Comptroller.  The  Deputy  Comptroller  shall  also  take  the  oath 
of  office  jirescribed  by  the  Constitution  and  laws  of  the  United 
States,  and  shall  give  a  like  bond  in  the  penalty  of  fifty  thou- 
sand dollars. 

6.  Interest  in  jSTational  Banks  Prohibited.  (Sec.  329.) 
It  shall  not  be  lawful  for  the  Comptroller  or  the  Deputy  Comp- 
troller of  the  Currency,  either  directly  or  indirectly,  to  be  in- 
terested in  any  association  issuing  national  currency  under  the 
laws  of  the  United  States. 

7.  Office  Clerks.  (Sec.  328.)  The  Comptroller  of  the 
Currency  shall  employ,  from  time  to  time,  the  necessary  clerks, 
to  be  appointed  and  classified  by  the  Secretary  of  the  Treasury, 
to  discharge  such  duties  as  the  Comptroller  shall  direct. 

8.  Seal  of  Office.  (Sec.  330.)  The  seal  devised  by  the 
Comptroller  of  the  Currency  for  his  office,  and  approved  by  the 
Secretary  of  the  Treasury,  shall  continue  to  be  the  seal  of  office 
of  the  Comptroller,  and  may  be  renewed  when  necessary.  A 
description  of  the  seal,  with  an  impression  thereof,  and  a  certifi- 
cate of  approval  of  the  Secretary  of  the  Treasury,  shall  be  filed 
in  the  office  of  the  Secretary  of  State, 

9.  Offices,  Vaults,  etc.  (Sec.  331.)  There  shall  be  as- 
signed, from  time  to  time,  to  the  Comptroller  of  the  Currency, 
by  the  Secretary  of  the  Treasury,  suitable  rooms  in  the  Treasury 
building  for  conducting  the  business  of  the  Currency  Bureau, 
containing;  safe  and  secure  fireproof  vaults,  in  which  the  Comp- 
troller shall  deposit  and  safely  keep  all  the  plates  not  necessarily 


Banking.  579 

in  the  possession  of  engravers  or  printers,  and  other  valuable 
things  belonging  to  his  department ;  and  the  Comptroller  shall 
from  time  to  time  furnish  the  necessary  furniture,  stationery, 
fuel,  lights,  and  other  proper  conveniences  for  the  transaction 
of  the  business  of  his  office. 

10.  Annual  Keport.  (Sec.  333.)  The  Comptroller  of  the 
Currency  shall  make  an  annual  report  to  Congress,  at  the 
commencement  of  its  session,  exhibiting — 

First.  Condition  of  national  hanks.— A  summary  of  the  state 
and  condition  of  every  association  from  which  reports  have 
been  received  the  preceding  year,  at  the  several  dates  to  v.hich 
such  reports  refer,  with  an  abstract  of  the  whole  amount  of 
banking  capital  returned  by  them,  of  the  whole  amount  of  their 
debts  and  liabilities,  the  amount  of  circulating  notes  outstand- 
ing, and  the  total  amount  of  means  and  resources,  specifying 
the  amount  of  lawful  money  held  by  them  at  the  times  of  their 
several  returns,  and  such  other  information  in  relation  to  such 
associations  as  in  his  judgment  Tiiay  be  useful. 

Second.  Closed  banJiS. — A  statement  of  the  associations 
whose  business  has  been  closed  during  the  year,  with  the  amount 
of  their  circulatinn  redeemed  and  the  amount  outstanding. 

Third.  Amendments  proposed. — Any  amendment  to  the  laws 
relative  to  banking  by  which  the  system  may  be  improved  and 
the  security  of  the  holders  of  its  notes  and  other  creditors  may 
be  increased. 

Fourth.  Condition  of  other  hanl's. — A  statement  exhibiting 
under  appropriate  heads  the  resources  and  liabilities  and  con- 
dition of  the  banks,  banking  companies,  and  savings  banks 
organized  under  the  laws  of  the  several  States  and  Territories, 
such  information  to  be  obtained  by  the  Comptroller  from  the 
reports  made  by  such  banks,  banking  companies,  and  savings 
banks  to  the  legislatures  or  officers  of  the  different  States  and 
Territories,  and,  where  such  reports  can  not  be  obtained,  the 
deficiency  to  be  supplied  from  such  other  aut'.rr-ntic  sources  as 
mav  be  available. 

Fifth.  Employes  and  expenses. —  The  names  and  compensa- 
tion of  the  clerks  employed  by  him,  and  the  whole  amount  of  the 
expenses  of  the  banking  department  during  the  year. 

11.  When  Annual  Eeport  is  Printed.  (Sec.  3811.) 
"When  the  Annual  Report  of  the  Comptroller  of  the  Currency 


580 


Appejstbix. 


upon  the  national  banks  and  banks  under  State  and  Territorial 
laws  is  completed,  or  while  it  is  in  process  of  completion,  if 
thereby  the  business  may  be  sooner  dispatched,  the  work  of 
printing  shall  be  commenced,  under  the  superintendence  of  the 
Secretary,  and  the  whole  shall  be  printed  and  ready  for  delivery 
on  or  before  the  first  day  of  December  next  after  the  close  of 
the  year  to  which  the  report  relates. 

12.  Number  of  Copies  to  be  Printed. —  The  act  of  Janu- 
ary 12,  1895,  provides  that  there  shall  be  printed  of  the  Annual 
Report  of  the  Comptroller  of  the  Currency  ten  thousand  copies ; 
one  thousand  for  the  Senate,  two  thousand  for  the  House,  and 
seven  thousand  for  distribution  by  the  Comptroller  of  the 
Currencv. 


ORGANIZATION    AND    POWERS    OF    NATIONAL    BANKS. 


13.  Articles   of  association. 

14.  Oragnization    certificate. 

15.  Execution    of    organization    cer- 

tificate. 
If).  Coi-porate  powers. 

17.  Amount   of   capital      stock      re- 

quired. 

18.  Shares   of   stock. 

19.  Payment  of  capital  stock. 

20.  Enforcing-  pa^inent  of  capital. 

21.  Restoration  of  capital. 

22.  Examination      of      orjjanization 

proceedings. 

23.  Certificate  of  officers     and     di- 

rectors. 

24.  Deposit  of  United  States  bonds. 

25.  Comptrollers        certificate        of 

authority. 

26.  Piiblication      of      certificate      of 

authority. 

27.  Number  and   election   of   direct- 

ors. 

28.  C^ialifications    of    directors. 

2f).  Qualifications      of     directors    in 
Oklahoma. 


30.  Qualifications        of      voters      at 

elections. 

31.  Oaths  of  directors. 

32.  Failure  to  hold  annual  election. 

33.  Vacancies  in  board  of  directors. 

34.  President  shall  be  a  director. 

35.  Organization  of  gold  banks. 

36.  Conversion  of  gold  banks. 

37.  Conversion  of  State  banks. 

38.  Capital  of  State  banks. 

39.  Converted     banKS     may     retain 

branches. 

40.  Personal      liability      of      share- 

holders. 

41.  Exception  for  trustees,  etc. 

42.  Amendment  of  articles  restrict- 

ed. 

43.  Increase  of  capital  stock. 

44.  When  increase  becomes  valid. 

45.  Reduction  of  capital  stock. 

4G.  Change  of  title  and  location. 

47.  Statvis  of  national  banks  or- 
ganized under  the  act  of 
February  25,  18G3. 


13.  Articles  of  Association.  (Sec.  5133.)  Associations 
for  carrying  on  the  business  of  banking  under  this  Title  may 
be  formed  by  any  number  of  natural  ])ersons,  not  less  in  any 
case  tlian  five.  They  shall  enter  into  articles  of  association, 
which  shall  sjiocifv  in  general  terms  the  object  for  which  the 
association  is  formed,  and  may  contain  any  other  provisions, 


Banking.  581 

not  inconsistent  with  law,  which  the  association  may  see  fit  to 
adopt  for  the  regiihition  of  its  husiness  and  the  conduct  of  its 
affairs.  These  articles  shall  be  signed  by  the  persons  uniting 
to  form  the  association,  and  a  copy  of  them  shall  be  forwarded 
to  the  Comptroller  of  the  Currency,  to  be  filed  and  preserved  in 
his  office. 

14.  Okganization  Certificate.  (Sec.  5131.)  The  per- 
sons uniting  to  form  such  an  association  shall,  under  their 
hands,  make  an  organization  certificate,  which  shall  specifically 
state — 

First.  Title. —  The  name  assumed  by  such  association  ;  which 
name  shall  be  subject  to  the  approval  of  the  Comptroller  of  the 
Currency. 

Second.  Location. —  The  place  where  its  operations  of  dis- 
count and  dej^osit  are  to  be  carried  on,  designating  the  State, 
Territory,  or  District,  and  the  particular  county  and  city,  town, 
or  village. 

Third.  Capital  stoch. —  The  amount  of  capital  stock  and  the 
number  of  shares  into  which  the  same  is  to  be  divided. 

Fourth.  Shareholders. —  The  names  and  places  of  residence 
of  the  shareholders  and  the  number  of  shares  held  by  each  of 
them. 

Fifth,  Object  of  certificate. —  The  fact  that  the  certificate  is 
made  to  enable  such  persons  to  avail  themselves  of  the  advan- 
tages of  this  Title. 

15.  Execution  of  Okganization  Certificate.  (Sec.  5135.) 
The  organization  certificate  shall  be  acknowledged  before  a 
judge  of  some  court  of  record  or  notary  public,  and  shall  be, 
together  with  the  acknowledgment  thereof,  authenticated  by  the 
seal  of  such  court  or  notary,  transmitted  to  the  Comptroller  of 
the  Currency,  who  shall  record  and  carefully  preserve  the  same 
in  his  office. 

16.  Corporate  Powers.  (Sec.  513C.)  ITpon  duly  making 
and  filing  articles  of  association  and  an  organization  certificate, 
the  association  shall  become,  as  from  the  date  of  the  execution 
of  its  organization  certificate,  a  body  corporate,  and  as  such, 
and  in  the  name  designated  in  the  organization  certificate,  it 
shall  have  power — 

First.    Seal. —  To  adopt  and  use  a  corporate  seal. 

Second.     Term   of  existence. —  To  have  succession  for  the 


582  Appendix. 

t 

period  of  twenty  years  from  its  organization,  unless  it  is  sooner 
dissolved  according  to  the  provisions  of  its  articles  of  associ- 
ation, or  by  the  act  of  its  shareholders  o^^^ling  two-thirds  of  its 
stock,  or  unless  its  franchise  becomes  forfeited  by  some  violation 
of  law. 

Third.    Contracts.-—  To  make  contracts. 

Fourth.  Suits. —  To  sue  and  be  sued,  complain  and  defend, 
in  any  court  of  law  and  [or]  equity,  as  fully  as  natural  persons. 

Fifth.  Ojficers. —  To  elect  or  appoint  directors,  and  by  its 
})oard  of  directors  to  appoint  a  president,  vice-president,  cash- 
ier, and  other  officers,  define  their  duties,  require  bonds  of  them 
and  fix  the  the  penalty  thereof,  dismiss  such  officers  or  any  of 
them  at  pleasure,  and  appoint  others  to  fill  their  places. 

Sixth.  By-laws. —  To  prescribe,  by  its  board  of  directors, 
by-laws  not  inconsistent  with  law,  regulating  the  manner  in 
which  its  stock  shall  be  transferred,  its  directors  elected  or 
appointed,  its  officers  appointed,  its  property  transferred,  its 
general  business  conducted,  and  the  privileges  granted  to  it  by 
law  exercised  and  enjoyed. 

Seventh,  Incidental  powers. —  To  exercise  by  its  board  of 
directors,  or  duly  authorized  officers  or  agents,  subject  to  law, 
all  such  incidental  powers  as  shall  be  necessary  to  carry  on  the 
lousiness  of  banking;  by  discounting  and  negotiating  promissory 
notes,  drafts,  bills  of  exchange,  and  other  evidences  of  debt; 
by  receiving  deposits ;  by  buying  and  selling  exchange,  coin, 
and  bullion ;  by  loaning  money  on  personal  security ;  and  by 
obtaining,  issuing,  and  circulating  notes  according  to  the  pro- 
lusions of  this  Title ;  but  no  association  shall  transact  any  busi- 
ness except  such  as  is  incidental  and  necessarily  preliminary 
to  its  organization  until  it  has  been  authorized  by  the  Comp- 
troller of  the  Currency  to  commence  the  business  of  banking. 

17.  Amount  of  Capital  Stock  Required.  (Sec.  513S,  as 
amended  by  act  of  March  14,  1900.)  'Ro  association  shall  be 
organized  with  a  less  capital  than  one  hundred  thousand  dollars, 
except  that  banks  with  a  capital  of  not  less  than  fifty  thousand 
dollars  may,  with  the  approval  of  the  Secretary  of  the  Treas- 
ury, be  organized  in  any  place  the  population  of  which  does 
not  exceed  six  thousand  inhabitants,  and  oxccjit  that  banks  with 
a  capital  of  not  less  than  twenty-five  thousand  dollars  may,  with 


Baxkixg.  58r> 

the  sanction  of  the  Secretary  of  the  Treasury,  be  organized  in 
any  place  the  population  of  which  does  not  exceed  three  thou- 
sand inhabitants.  Xo  association  shall  be  organized  in  a  city 
the  population  of  which  exceeds  fifty  thousand  persons  with  a 
capital  of  less  than  two  hundred  thousand  dollars. 

18.  Shakes  of  Stock.  (Sec.  5139.)  The  capital  stock  of 
each  association  shall  be  divided  into  shares  of  one  hundred 
dollars  each,  and  be  deemed  personal  property,  and  transferable 
on  the  books  of  the  association  in  such  manner  as  may  be 
prescribed  in  the  by-laws  or  articles  of  association.  Every  per- 
son becoming  a  shareholder  by  such  transfer  shall,  in  proportion 
to  his  shares,  succeed  to  all  the  rights  and  liabilities  of  the 
prior  holder  of  such  shares. 

19.  Payment  of  Capital  Stock.  (Sec.  5140.)  At  least 
fifty  per  centum  of  the  capital  stock  of  every  association  shall 
be  paid  in  before  it  shall  be  authorized  to  commence  business; 
and  the  remainder  of  the  capital  stock  of  such  association  shall 
be  paid  in  installments  of  at  least  ten  per  centum  each,  on  the 
whole  amount  of  the  capital,  as  frequently  as  one  installment  at 
the  end  of  each  succeeding  month  from  the  time  it  shall  be 
authorized  by  the  Comptroller  of  the  Currency  to  commence 
business ;  and  the  payment  of  each  installment  shall  be  certified 
to  the  Comptroller,  under  oath,  by  the  president  or  cashier  of 
the  association. 

20.  ExFORCiNG  Payment  of  Capital.  (Sec.  5141.)  When- 
ever any  shareholder,  or  his  assignee,  fail  to  pay  any  install- 
ment on  the  stock  when  the  same  is  required  by  the  preceding 
section  to  be  paid,  the  directors  of  such  association  may  sell  the 
stock  of  such  delinquent  shareholder  at  public  auction,  having 
given  three  weeks'  previous  notice  thereof  in  a  newspaper  pub- 
lished and  of  general  circulation  in  the  city  or  county  where 
the  association  is  located,  or  if  no  newspaper  is  published  in 
said  city  or  county,  then  in  a  newspaper  published  nearest 
thereto,  to  any  person  who  will  pay  the  highest  price  therefor, 
to  ]>e  not  less  than  the  amount  then  due  thereon,  with  the  ex- 
penses of  advertisement  and  sale ;  and  the  excess,  if  any,  shall 
be  paid  to  the  delinquent  shareholder.  If  no  bidder  can  be 
found  who  will  pay  for  such  stock  the  amount  due  thereon  to 
the  association,  and  the  cost  of  advertisement  and  sale,  the 
amount  previously  paid  shall  be  forfeited  to  the  association, 


6S4  Appe^sDix. 

and  sucli  stock  sliall  lae  sold  as  the  directors  maj  order,  within 
six  months  froin  the  time  of  such  forfeitiu-e,  and  if  not  jold  it 
shall  be  canceled  and  deducted  from  the  capital  stock  of  the 
association. 

21.  Restoration  of  Capitae.  (Sec.  5141.)  If  any  such 
cancellation  and  reduction  shall  reduce  the  capital  of  the 
association  below  the  minimum  of  capital  required  by  law,  the 
capital  stock  shall,  within  thirty  days  from  the  date  of  such 
cancellation,  be  increased  to  the  required  amount ;  in  default  of 
which  a  receiver  may  be  apj^ointed,  according  to  the  provisions 
of  section  fifty-two  hundred  and  thirty-foiu',  to  close  up  the 
business  of  the  association. 

22.  ExAMiXATiox  OF  Oegaxizatiox  Peoceedings.  (Sec. 
5168.)  Whenever  a  certificate  is  transmitted  to  the  Comji- 
troller  of  the  Currency,  as  provided  in  this  Title,  and  the 
association  transmitting  the  same  notifies  the  Comptroller  that 
at  least  fifty  per  centum  of  its  capital  stock  has  been  duly  paid 
in,  and  that  such  association  has  complied  with  all  the  pro- 
visions of  this  Title  required  to  be  complied  with  before  an 
association  shall  be  authorized  to  commence  the  business  of 
banking,  the  Comptroller  shall  examine  into  the  condition  of 
such  association,  ascertain  especially  the  amount  of  money  paid 
in  on  account  of  its  capital,  the  name  and  place  of  residence 
of  each  of  its  directors,  and  the  amount  of  the  capital  stock 
of  which  each  is  the  owner  in  good  faith,  and  generally  whether 
such  association  has  complied  with  all  the  provisions  of  this 
Title  required  to  entitle  it  to  engage  in  the  business  of  banking. 

23.  Cebtificate  OF  Officers  Aj5ri>  Directors.  (Sec.  5168.) 
And  shall  cause  to  be  made  and  attested  by  the  oaths  of  a 
majority  of  the  directors,  and  by  the  president  or  cashier  of  the 
association,  a  statement  of  all  the  facts  necessary  to  enable  the 
Comptroller  to  determine  whether  the  association  is  lawfully 
entitled  to  commence  the  business  of  banking. 

24.  Deposit  of  U^fiTED  States  Bonds.  (Sec.  5159.) 
Every  association,  after  having  complied  with  the  provisions 
of  this  Title,  preliminary  to  the  commencement  of  the  bank- 
ing business,  and  before  it  shall  be  authorized  to  commence 
banking  business  under  this  Title,  shall  transfer  and  deliver 
to  the  Treasurer  of  the  United  States,  as  security  for  its  circu- 
lating notes,  any  United  States  registered  bonds  bearing  inter- 


Bx\NKING.  585 

est,  to  an  amount  where  the  capital  is  one  hundred  and  fifty 
thousand  dollars  or  less,  of  not  less  than  one-fourth  of  the 
capital,  and  fifty  thousand  dollars  where  the  capital  is  in  ex- 
cess of  one  hundred  and  fifty  thousand  dollars.  (Note. — As 
amended  by  sec.  8  of  the  act  of  July  12,  1882.) 

25.  Comptrollee's  Certificate  of  Authority.  (Sec. 
51G9.)  If,  upon  a  careful  examination  of  the  facts  so  reported, 
and  of  any  other  facts  which  may  come  to  the  knowledge  of  the 
Comptroller,  whether  by  means  of  a  special  commission  ap- 
pointed by  kim  for  the  purpose  of  inquiring  into  the  condition 
of  such  association,  or  otherwise,  it  appears  that  such  associ- 
ation is  lawfully  entitled  to  commence  the  business  of  banking, 
the  Comptroller  shall  give  to  such  association  a  certificate, 
under  his  hand  and  official  seal,  that  such  association  has 
complied  with  all  tlie  provisions  required  to  be  complied  with 
before  commencing  the  business  of  banking,  and  that  such 
assocation  is  authorized  to  commence  such  business.  But  the 
Comptroller  may  withold  from  an  association  his  certificate 
authorizing  the  commencement  of  business  whenever  he  has 
reason  to  suppose  that  the  shareholders  have  formed  the  same 
for  any  other  than  the  legitimate  objects  contemplated  by  this 
title. 

26.  Publication  of  Certificate  of  Autjiority.  (Sec. 
5170.)  The  association  shall  cause  the  certificate  issued  under 
the  preceding  section  to  be  published  in  some  newspaper  printed 
in  the  city  or  county  where  the  association  is  located,  for  at  least 
sixty  days  next  after  the  issuing  thereof;  or,  if  no  newspaper 
is  published  in  such  city  or  county,  then  in  the  newspaper 
published  nearest  thereto. 

27.  Number  and  Election  of  Directors.  (Sec.  5145.) 
The  affairs  of  each  association  shall  be  managed  by  not  less 
than  five  directors,  who  shall  be  elected  by  the  shareholders  at 
a  meeting  to  be  held  at  any  time  before  the  association  is 
authorized  by  the  Comptroller  of  the  Currency  to  commence 
the  business  of  banking,  and  afterward  at  meetings  to  be  held 
on  such  day  in  January  of  each  year  as  is  specified  therefor  in 
the  articles  of  association.  The  directors  shall,  hold  office  for 
one  year,  and  until  their  successors  are  elected  and  have 
qualified. 


586  Appendix. 

28.  Qualifications  of  Dieectoes.  (Sec.  5146.)  Every 
director  must,  during  his  whole  term  of  service,  be  a  citizen  of 
the  United  States,  and  at  least  three-fourths  of  the  directors 
must  have  resided  in  the  State,  Territory,  or  District  in  which 
the  association  is  located  for  at  least  one  year  immediately  pre- 
ceding their  election,  and  must  be  residents  therein  during 
their  continuance  in  office.  Every  director  must  own,  in  his 
own  right,  at  least  ten  shares  of  the  capital  stock  of  the  associ- 
ation of  which  he  is  a  director.  Any  director  who  ceases  to 
be  the  owner  of  ten  shares  of  the  stock,  or  who  becomes  in  any 
other  manner  disqualified,  shall  thereby  vacate  his  place. 

29.  Qualifications  of  Dieectoes  in  Oklahoma. —  Sec.  17 
of  the  act  of  May  2,  1890,  provides  "that  the  provisions  of 
Title  sixty-two  of  the  Revised  Statutes  of  the  United  States 
relating  to  national  banks,  and  all  amendments  thereto,  shall 
have  the  same  force  and  effect  in  the  Territory  of  Oklahoma  as 
elsewhere  in  the  United  States  : 

**  Provided,  That  persons  otherwise  qualified  to  act  as  di- 
rectors shall  not  be  required  to  have  resided  in  said  Territory 
for  more  than  three  months  immediately  preceding  their  elec- 
tion as  such." 

30.  Qualifications  of  Votees  at  Elections.  (Sec.  5144.) 
In  all  elections  of  directors,  and  in  deciding  all  questions  at 
meetings  of  shareholders,  each  shareholder  shall  be  entitled  to 
one  vote  on  each  share  of  stock  held  by  him.  Shareholders  may 
vote  by  proxies  duly  authorized  in  writing;  but  no  ofiicer,  clerk, 
teller,  or  bookkeeper  of  such  association  shall  act  as  proxy ;  and 
no  shareholder  whose  liability  is  past  due  and  unpaid  shall  be 
allowed  to  vote. 

31.  Oaths  of  Dieectoes.  (Sec.  5147.)  Each  director, 
when  appointed  or  elected,  shall  take  an  oath  that  he  will,  so 
far  as  the  duty  devolves  on  him,  diligently  and  honestly  ad- 
minister the  affairs  of  such  association,  and  will  not  know- 
ingly violate,  or  willingly  permit  to  be  violated,  any  of  the  pro- 
visions of  this  Title,  and  that  he  is  the  owner  in  good  faith, 
and  in  his  own  right,  of  the  number  of  shares  of  stock  required 
by  this  Title,  subscribed  by  him,  or  standing  in  his  name  on 
the  books  of  the  association,  and  that  the  same  is  not  h^qiothe- 


Banking.  587 

cated  or  in  any  way  pledged  as  security  for  any  loan  or  debt. 
Such  oath,  subscribed  by  the  director  making  it,  and  certified 
by  the  officer  before  whom  it  is  taken,  shall  be  immediately 
transmitted  to  the  Comptroller  of  the  Currency,  and  shall  be 
filed  and  preserved  in  his  ofiice. 

32.  Failure  to  Hold  Annual  Election.  (Sec.  5149.) 
If,  from  any  cause,  an  election  of  directors  is  not  made  at  the 
time  appointed,  the  association  shall  not  for  that  cause  be  dis- 
solved, but  an  election  may  be  held  on  any  subsequent  day, 
thirty  days'  notice  thereof  in  all  cases  having  been  given  in 
a  newspaper  published  in  the  city,  town,  or  county  in  which 
the  association  is  located;  and  if  no  newspaper  is  published  in 
such  city,  town,  or  county  such  notice  shall  be  published 
in  a  newspaper  published  nearest  thereto.  If  the  articles  of 
association  do  not  fix  the  day  on  which  the  election  shall  be 
held,  or  if  no  election  is  held  on  the  day  fixed,  the  day  for  the 
election  shall  be  designated  by  the  board  of  directors  in  their 
by-laws,  or  otherwise ;  or  if  the  directors  fail  to  fix  the  day, 
shareholders  representing  two-thirds  of  the  shares  may  do  so. 

33.  Vacancies  in  Board  of  Directors.  (Sec.  5148.) 
Any  vacancy  in  the  board  shall  be  filled  by  appointment  by 
the  remaining  directors,  and  any  director  so  appointed  shall 
hold  his  place  until  the  next  election. 

34.  President  shall  be  a  Director.  (Sec.  5150.)  One  of 
the  directors,  to  be  chosen  by  the  board,  shall  be  the  president 
of  the  board. 

35.  Organization  of  Gold  Banks.  (Sec.  5185.)  Associa- 
tions may  be  organized  in  the  manner  prescribed  by  this  Title 
for  the  purpose  of  issuing  notes  payable  in  gold. 

86.  Conversion  of  Gold  Banks. —  The  act  of  February 
14,  1880,  provides  that  any  national  gold  bank  organized 
under  the  provisions  of  the  laws  of  the  United  States  may, 
in  the  manner  and  subject  to  the  provisions  prescribed  by  sec- 
tion fifty-one  hundred  and  fifty-four  of  the  Revised  Statutes 
of  the  United  States,  for  the  conversion  of  banks  incorporated 
under  the  laws  of  any  State,  cease  to  be  a  gold  bank  and  be- 
come such  an  association  as  is  authorized  by  section  fifty-one 
hundred  and  thirty-three,  for  carrying  on  the  business  of  bank- 
ing, and  shall  have  the  same  powers  and  privileges,  and  shall 


5S8  ArPEXDix. 

be  subject  to  the  same  duties,  responsibilities,  aud  rules,  in  all 
respects,  as  are  bv  law  prescribed  for  such  associations:  Pro- 
vided, That  all  certificates  of  organization  -which  shall  be  issued 
under  this  act  shall  bear  the  date  of  the  original  organization 
of  each  bank  respectively  as  a  gold  bank. 

37.  CoNVEESiox  OF  State  Baxks.  (Sec.  5154.)  Any  bank 
incorporated  by  special  law,  or  any  banking  institution  or- 
ganized under  a  general  law  of  any  State,  may  become  a  national 
association  under  this  Title  by  the  name  prescribed  in  its  or- 
ganization certificate ;  and  in  such  case  the  articles  of  associa- 
tion and  the  organization  certificate  may  be  executed  by  a  ma- 
jority of  the  directors  of  the  bank  or  banking  institution ;  and 
the  ceitificate  shall  declare  that  the  o^^'ners  of  two-thirds  of 
the  capital  stock  have  authorized  the  directors  to  make  such 
certificate,  and  to  change  and  convert  the  bank  or  banking  in- 
stitution into  a  national  association.  A  majority  of  the 
directors,  after  executing  the  articles  of  association  and  organiza- 
tion certificate,  shall  have  power  to  execute  all  other  papers,  and 
to  do  whatever  may  be  required  to  make  its  organization  per- 
fect and  complete  as  a  national  association.  The  shares  of  any 
such  bank  may  continue  to  be  for  the  same  amount  each  as  they 
were  before  the  conversion,  and  the  directors  may  continue  to 
be  the  directors  of  the  association  until  others  are  elected  or 
appointed  in  accordance  A\*ith  the  provisions  of  this  chapter ;  and 
any  State  bank  which  is  a  stockholder  in  any  other  bank,  by 
authority  of  State  laws,  may  continue  to  hold  its  stock,  although 
either  bank,  or  both,  may  be  organized  under  and  have  accepted 
the  provisions  of  this  Title.  When  the  Comjitroller  of  the  Cur- 
rency has  given  to  such  association  a  certificate,  under  his  hand 
and  ofiicial  seal,  that  the  provisions  of  this  Title  have  been  com- 
plied with,  and  that  it  is  authorized  to  commence  the  business 
of  banking,  the  association  shall  have  the  same  powers  and 
privileges,  and  shall  be  subject  to  the  same  duties,  responsibili- 
ties, and  rules,  in  all  respects,  as  are  prescribed  for  other  asso- 
ciations, originally  organized  as  national  banking  associations, 
and  shall  be  held  and  regarded  as  such  an  association.  But  no 
such  association  shall  have  a  less  capital  than  the  amount  pre- 
scribed for  associations  organized  under  this  Title.  / 


Baxki2^g.  589 

3S.  Capital  of  State  Banks.  (Sec.  3410.)  The  capital 
of  any  State  bank  or  banking  association  whicli  has  ceased  or 
shall  cease  to  exist,  or  which  has  been  or  shall  be  converted 
into  a  national  bank,  shall  be  assumed  to  be  the  capital  as  it 
existed  immediately  before  such  bank  ceased  to  exist  or  was 
converted  as  aforesaid. 

39.  CoxvERTED  Banks  May  Retain  Branches.  (Sec. 
5155.)  It  shall  be  lawful  for  anv  bank  or  banking  association, 
organized  under  State  laws  and  having  branches,  the  capital 
being  joint  and  assigned  to  and  used  by  the  mother  bank  and 
branches  in  definite  proportions,  to  become  a  national  banking 
association  in  conformity  with  existing  laws  and  to  retain  and 
keep  in  operation  its  branches,  or  such  one  or  more  of  them 
as  it  may  elect  to  retain,  the  amount  of  the  circulation  re- 
deemable at  the  mother  bank  and  each  branch  to  be  regulated 
by  the  amount  of  capital  assigned  to  and  used  by  each. 

40.  Personal  Liability  of  Shareholders.  (Sec.  5151.) 
The  shareholders  of  every  national  banking  association  shall 
be  held  individually  responsible,  equally  and  ratably,  and  not 
one  for  another,  for  all  contracts,  debts,  and  engagements  of 
such  association  to  the  extent  of  the  amount  of  their  stock 
therein,  at  the  par  value  thereof,  in  addition  to  the  amount 
invested  in  such  shares,  except  that  shareholders  of  any  bank- 
ing association  now  existing  under  State  laws  having  not  less 
than  five  millions  of  dollars  of  capital  actually  paid  in  and  a 
surplus  of  twenty  per  centum  on  hand,  both  to  be  determined 
by  the  Comptroller  of  the  Currency,  shall  be  liable  only  to  the 
amount  invested  in  their  shares  ;  and  such  surplus  of  twenty  per 
centum  shall  be  kept  undiminished,  and  be  in  addition  to  the 
surplus  provided  for  in  this  Title ;  and  if  at  any  time  there  is  a 
deficiency  in  such  surplus  of  twenty  per  centum  such  associa- 
tion shall  not  pay  any  dividends  to  its  shareholders  until  the 
deficiency  is  made  good;  and  in  case  of  such  deficiency  the 
Comptroller  of  the  Currency  may  compel  the  association  to 
close  its  business  and  wind  up  its  affairs  under  the  provisions 
of  chapter  four  of  this  Title. 

41.  Exception  for  Trustees^  etc.  (Sec.  5152.)  Persons 
holding  stock  as  executors,  administrators,  guardians,  or  trus- 
tees shall  not  be  personally  subject  to  any  liabilities  as  stock- 


590  Appendix. 

holders ;  but  the  estates  and  funds  in  their  liands  shall  be  liable 
in  like  manner  and  to  the  same  extent  as  the  testator,  intestate, 
ward,  or  person  interested  in  such  trust  funds  would  be  if  living 
and  competent  to  act  and  hold  the  stock  in  his  own  name. 

42.  Amendment  of  Articles  Restkicted. —  Sec.  5139 
provides  that  no  change  shall  be  made  in  the  articles  of  as- 
sociation of  a  national  bank  by  which  the  rights,  remedies,  or 
security  of  the  existing  creditors  of  the  association  shall  be 
impaired. 

43.  Increase  of  Capital  Stock.  (Sec.  5142.)  Any  asso- 
ciation formed  under  this  Title  may,  by  its  articles  of  associa- 
tion, jorovide  for  an  increase  of  its  capital  from  time  to  time, 
as  may  be  deemed  expedient,  subject  to  the  limitations  of  this 
Title.  But  the  maximum  of  such  increase  to  be  provided  in  the 
articles  of  association  shall  be  determined  by  the  Comptroller 
of  the  Currency.  Sec.  1  of  the  act  of  May  1,  18S6,  provides 
that  any  national  banking  association  may,  with  the  approval 
of  the  Comptroller  of  the  Currency,  by  the  vote  of  share- 
holders owning  two-thirds  of  the  stock  of  such  association,  in- 
crease its  capital  stock,  in  accordance  with  existing  laws,  to 
any  sum  approved  by  the  said  Comptroller,  notwithstanding  the 
limit  fixed  in  its  original  articles  of  association  and  determined 
by  said  Comptroller ;  and  no  increase  of  the  capital  stock  of 
any  national  banking  association  either  within  or  beyond  the 
limit  fixed  in  its  original  articles  of  association  shall  be  made 
except  in  the  manner  herein  provided. 

44.  When  Increase  Becomes  Valid.  (Sec.  5142.)  And 
no  increase  of  capital  shall  be  valid  until  the  whole  amount  of 
such  increase  is  paid  in,  and  notice  thereof  has  been  trans- 
mitted to  the  Comptroller  of  the  Currency,  and  his  certificate 
obtained  specifying  the  amount  of  such  increase  of  capital 
stock,  with  his  approval  thereof,  and  that  it  has  been  duly 
paid  in  as  part  of  the  capital  of  such  association. 

45.  Reduction  of  Capital  Stock.  (Sec.  5143.)  Any 
association  formed  under  this  Title  may,  by  the  vote  of  share- 
liolders  owning  two-thirds  of  its  capital  stock,  reduce  its  capi- 
tal to  any  sum  not  l)clo\v  the  amount  rofiuired  by  this  Title 
t.'i  authorize  the  formation  of  a'^sociations,  but  no  such  reduc- 
tion ^diall  be  allowable  which  will  reduce  the  capital  of  the  as- 


Banking.  591 

sociation  below  the  amount  required  for  its  outstanding  circu- 
lation, nor  shall  any  such  reduction  be  made  until  the  amount 
of  the  proposed  reduction  has  been  reported  to  the  Comptroller 
of  the  CuiTency  and  his  approval  thereof  obtained. 

46.  Change  of  Title  and  Location. —  Sees.  2,  3,  and  4 
of  the  act  of  May  1,  1886,  provide: 

Sec.  2.  That  any  national  banking  association  may  change 
its  name  or  the  place  where  its  operations  of  discount  and  de- 
posit are  to  be  carried  on  to  any  other  place  within  the  same 
State,  not  more  than  thirty  miles  distant,  with  the  approval  of 
the  Comptroller  of  the  Currency,  by  the  vote  of  shareholders 
owning  two-thirds  of  the  stock  of  such  association.  A  duly 
authenticated  notice  of  the  vote  and  of  the  new  name  or  loca- 
tion selected  shall  be  sent  to  the  office  of  the  Comptroller  of 
the  Currency,  but  no  change  of  name  or  location  shall  be  valid 
until  the  Comptroller  shall  have  issued  his  certificate  of  ap- 
proval of  the  same. 

Sec.  3.  That  all  debts,  liabilities,  rights,  provisions,  and 
powers  of  the  association  under  its  old  name  shall  devolve  upon 
and  inure  to  the  association  under  its  new  name. 

Sec.  4.  That  nothing  in  this  act  contained  shall  be  so  con- 
strued as  in  any  manner  to  release  any  national  banking- 
association  under  its  old  name  or  at  its  old  location  from  any 
liability,  or  aifect  any  action  or  proceeding  in  law  in  which  said 
association  may  be  or  become  a  party  or  interested. 

47.  Status  of  I^ational  Banks  Organized  under  the 
Act  of  February  25,  1863.  (Sec.  5156.)  That  nothing  in 
this  Title  shall  affect  any  appointments  made,  acts  done,  or  pro- 
ceedings had  or  commenced  prior  to  the  third  day  of  June,  eigh- 
teen hundred  and  sixty-four,  in  or  toward  the  organization  of 
any  national  banking  association  under  the  act  of  February 
twenty-five,  eighteen  hundred  and  sixty-three;  but  all  associa- 
tions which  on  the  third  day  of  June,  eighteen  hundred  and 
sixty-four,  were  organized  or  commenced  to  be  organized  under 
that  act  shall  enjoy  all  the  rights  and  privileges  granted,  and  be 
subject  to  all  the  duties,  liabilities,  and  restrictions  imposed  by 
this  Title,  notwithstanding  all  the  steps  prescribed  by  this  Title 
for  the  organization  of  associations  were  not  pursued,  if  such 
associations  were  dulv  organized  under  that  act. 


>92  Appendix. 


BANK   CIRCULATION. 

4S.  United    States   bonds    defined.  65.  Worn-out  or  mutilated  circula- 

49.  Security  for  circulation.  tion. 

50.  Relation     of     bond     deposit    to       G6.  Provisions   for  redeeming   circu- 

capital.  lation. 

51.  Exchange  of  bonds.  67.  Withdrawing  circulation. 

52i  Bonds  lield  by  Treasurer.  68.  General     provisions     for     with- 

53.  Record  of  bond  transfers.  drawing  circulation. 

54.  Notice  of  transfer.  69.  Circulation   of  extended  banks. 

55.  Examination   of  bonds   and  rec-       70.  Circulation  of  liquidating   banks. 

ords.  71.  Circulation  of  closed  banks. 

56.  Annual  examination  of  bonds.  72.  Regulations  for  redemption  rec- 

57.  General      provisions      respecting  ords. 

bonds.  73.  Redeemed  notes  to  be  canceled. 

58.  Amount     of     circulation  obtain-       74.  Redemption     in     United  States 

able.  notes. 

59.  Preparation  of  bank  circulation.       75.  Disposition    of    redemption    ac- 

60.  Circulation     shall  bear    charter  covmt. 

number.  76.  Redemption   of   incomplete      cir- 

61.  Control  of  plates  and  dies.  dilation. 

62.  Examination  of  plates  and  dies.  77.  Banks  take  circulation  at  par. 

63.  Circulation,  for  Avhat  receivable.  78.  Issue  of  other  notes   prohibited. 

64.  Circulation  of  gold  banks.  79.  Fraudulent  no.tes  to  be  marked. 

48.  Unitkd  States  Bonds  Defined.  (Sec.  5158.)  The 
term  "  United  States  bonds,"  as  used  tliroughout  this  chapter, 
shall  be  construed  to  mean  registered  bonds  of  the  United 
States. 

49.  (Sec.  5159  as  amended  by  section  8,  act  of  July  12, 
1882.)  Every  association,  after  having  complied  with  the  pro- 
visions of  this  Title,  preliminary  to  the  commencement  of  the 
banking  business,  and  before  it  shall  be  authorized  to  commence 
banking  business  under  this  Title,  shall  transfer  and  deliver  to 
the  Treasurer  of  the  United  States  any  United  States  registered 
bonds,  bearing  interest,  to  an  amount  not  less  than  one-fourth 
of  the  capital,  the  capital  being  $150,000  or  less,  as  security 
for  their  circulating  notes.  Such  bonds  shall  be  received  by 
the  Treasurer  upon  deposit  and  shall  be  by  him  safely  kept  in 
his  office  until  they  shall  be  otherwise  disposed  of  in  pursuance 
of  the  provisions  of  this  Title. 

Section  4,  act  of  June  20,  1874,  provides  in  part  that  the 
amount  of  bonds  on  deposit  for  circulation  shall  not  be  reduced 
below  $50,000.  This  determines  the  amount  of  bonds  required 
tn  be  deposited  by  banks  organizing  with  capital  stock  of  over 
$150,000. 


Baxkixg.  593 

(See  sec.  5159  of  the  United  States  Revised  Statutes;  sec.  4, 
act  of  June  20,  1874;  sec.  8,  act  of  July  12,  1882,  and  act  of 
March  14,  1900,  as  to  relation  of  bond  deposit  to  capital.) 

50.  Eelatiox  of  Boxd  Deposit  to  Capital.  (Sec.  5160.) 
The  deposit  of  bonds  made  bv  each  association  shall  be  in- 
creased as  its  capital  may  be  paid  up  or  increased,  so  that  every 
association  shall  at  all  times  have  on  deposit  with  the  Treasurer 
registered  United  States  bonds  to  the  amount  required  by  law. 
And  any  association  that  may  desire  to  reduce  its  capital  or 
close  up  its  business  and  dissolve  its  organization  may  take  up 
its  bonds  upon  returning  to  the  Comptroller  its  circulating  notes 
ill  the  proportion  hereinafter  required,  or  may  take  up  any 
excess  of  bonds  beyond  the  amount  required  by  law,  and  upon 
which  no  circulating  notes  have  been  delivered. 

51.  Exchange  of  Bonds.  (Sec.  5161.)  To  facilitate  a 
compliance  with  the  two  preceding  sections,  the  Secretary  of 
the  Treasury  is  authorized  to  receive  from  any  association,  and 
cancel,  any  United  States  coupon  bonds,  and  to  issue  in  lieu 
thereof  registered  bonds  of  like  amount,  bearing  a  like  rate  of 
interest,  and  having  the  same  time  to  run. 

52.  Bonds  Held  by  Treasurek.  (Sec.  5162.)  All  trans- 
fers of  United  States  bonds  made  by  any  association  under  the 
provisions  of  this  title  shall  be  made  to  the  Treasurer  of  the 
United  States  in  trust  for  the  association,  with  a  memorandum 
written  or  printed  on  each  bond,  and  signied  by  the  cashier,  or 
some  other  officer  of  the  association  making  the  deposit.  A  re- 
ceipt shall  be  given  to  the  association,  by  the  Comptroller  of 
the  Currency,  or  by  a  clerk  appointed  by  him  for  that  purpose, 
stating  that  the  bond  is  held  in  trust  for  the  association  on 
whose  behalf  the  transfer  is  made,  and  as  security  for  the 
redemption  and  payment  of  any  circulating  notes  that  have 
been  or  may  be  delivered  to  such  association.  jSTo  assignment 
01  transfer  of  any  such  bond  by  the  Treasurer  shall  be  deemed 
valid  unless  countersigned  by  the  Comptroller  of  the  Currency. 

53.  Record  of  Bond  Transfers.  (Sec.  5163.)  The  Comp- 
troller of  the  Currency  shall  keep  in  his  office  a  book  in  which 
he  shall  cause  to  be  entered,  immediately  upon  countersigning 
it,  every  transfer  or  assignment  by  the  Treasurer,  of  any  bonds 
l^elonging  to  a  national  1)anking  association,  presented  for  his 
signature.     He  shall  state  in  such  entry  the  name  of  the  asso- 

38 


594  Appendix. 

ciation  from  whose  account  the  transfer  is  made,  the  name  of 
the  party  to  whom  it  is  made,  and  the  par  value  of  the  bonds 
transferred. 

54.  Notice  of  Transfer.  (Sec.  5164.)  The  Comptroller 
of  the  Currency,  shall,  immediately  upon  countersigning  and 
entering  any  transfer  or  assignment  by  the  Treasurer  of  any 
bonds  belonging  to  a  national  banking  association,  advise  by 
mail  the  association  from  whose  accounts  the  transfer  is  made 
of  the  kind  and  numerical  designation  of  the  bonds  and  the 
amount  thereof  so  transferred. 

55.  Examination  of  Bonds  and  Records.  (Sec.  5165.) 
The  Comptroller  of  the  Currency  shall  have  at  all  times,  during 
office  hours,  access  to  the  books  of  the  Treasurer  of  the  United 
Slates  for  the  purpose  of  ascertaining  the  correctness  of  any 
transfer  or  assignment  of  the  bonds  dej)osited  by  an  association, 
presented  to  the  Comptroller  to  countersign ;  and  the  Treasurer 
shall  have  the  like  access  to  the  book  mentioned  in  section  fifty- 
one  hundred  and  sixty-three,  during  office  hours,  to  ascertain 
the  correctness  of  the  entries  in  the  same;  and  the  Comptroller 
shall  also  at  all  times  have  access  to  the  bonds  on  deposit  with 
the  Treasurer  to  ascertain  their  amount  and  condition. 

56.  Annual  Examination  of  Bonds.  (Sec.  5166.)  Every 
association  having  bonds  deposited  in  the  office  of  the  Treasurer 
of  the  United  States  shall,  once  or  oftener  in  each  fiscal  year, 
examine  and  compare  the  bonds  pledged  by  the  association  with 
the  books  of  the  Comptroller  of  the  Currency  and  with  the  ac- 
counts of  the  association,  and,  if  they  are  found  correct,  to 
execute  to  the  Treasurer  a  certificate  setting  forth  the  different 
kinds  and  the  amounts  thereof,  and  that  the  same  are  in  the 
possession  and  custody  of  the  Treasurer  at  the  date  of  the  cer- 
tificate. Such  examination  shall  be  made  at  such  time  or  times 
during  the  ordinary  business  hours  as  the  Treasurer  and  the 
Comptroller,  respectively,  may  select,  and  may  be  made  by  an 
officer  or  agent  of  such  association,  duly  appointed  in  AVriting  for 
that  purpose  ;  and  his  certificate  before  mentioned  shall  be  of  like 
force  and  validity  as  if  executed  by  the  president  or  cashier. 
A  duplicate  of  such  certificate,  signed  by  the  Treasurer,  shall 
be  retained  by  the  association. 

57.  General  Provisions  Respecting  Bonds.  (Sec.  5167.) 
The  bonds  transferred  to  and  deposited  with  the  Treasurer  of 


Banking.  595 

the  United  States  by  any  association  for  the  security  of  its  circu- 
lating notes  shall  be  held  exclusively  for  that  purpose  until 
such  notes  are  redeemed,  except  as  i)rovided  in  this  Title.  The 
Comptroller  of  the  Currency  shall  give  to  any  such  association 
powers  of  attorney  to  receive  and  appropriate  to  its  own  use 
the  interest  on  the  bonds  which  it  has  so  transferred  to  the 
Treasurer;  but  such  powers  shall  become  inoperative  whenever 
such  association  fails  to  redeem  its  circulating  notes.  Whenever 
the  market  or  cash  value  of  any  bonds  thus  deposited  with  the 
Treasurer  is  redeemed  below  the  amount  of  the  circulation 
issued  for  the  same  the  Comptroller  may  demand  and  receive 
the  amount  of  such  depreciation  in  other  United  States  bonds 
at  cash  value,  or  in  money,  from  the  association,  to  be  deposited 
with  the  Treasurer  as  long  as  such  depreciation  continues.  And 
the  Comptroller,  upon  the  terms  prescribed  by  the  Secretary 
of  the  Treasury,  may  permit  an  exchange  to  be  made  of  any 
c;f  the  bonds  deposited  with  the  Treasurer  by  any  association 
for  other  bonds  of  the  United  States  authorized  to  be  received 
as  security  for  circulating  notes  if  he  is  of  opinion  that  such 
an  exchange  can  be  made  without  prejudice  to  the  United 
States ;  and  he  may  direct  the  return  of  any  bonds  to  the  associ- 
ation which  transferred  the  same,  in  sums  of  not  less  than  one 
thousand  dollars,  upon  the  surrender  to  him  and  the  cancel- 
lation of  a  proportionate  amount  of  such  circulating  notes :  Pro- 
vided, That  the  remaining  bonds  which  shall  have  been  trans- 
ferred by  the  association  offering  to  surrender  circulating  notes 
are  equal  to  the  amount  required  for  the  circulating  notes  not 
surrendered  by  such  association,  and  that  the  amount  of  bonds 
in  the  hands  of  the  Treasurer  is  not  diminished  below  the 
amount  required  to  be  kept  on  deposit  with  him,  and  that 
there  has  been  no  failure  by  the  association  to  redeem  its 
circulating  notes,  nor  any  other  violation  by  it  of  the  pro- 
^dsions  of  this  Title,  and  that  the  market  or  cash  value  of  the 
remaining  bonds  is  not  below  the  amount  required  for  the 
circulation  issued  for  the  same. 

58.  Amount  of  Circulation  Obtainable. —  Sec.  10  of  the 
act  of  July  12,  1882,  as  amended  by  act  of  March  14,  1900, 
provides  that  upon  the  deposit  with  the  Treasurer  of  the 
United  States,  by  any  national  banking  association,  of  any 
bonds  of  the  United  States  in  the  manner  provided  by  exist- 


596  Appendix. 

ing  law,  such  association  shall  be  entitled  to  receive  from  the 
Comptroller  of  the  Currency  circulating  notes  in  blank,  regis- 
tered and  countersigned  as  provided  by  law,  equal  in  amount 
to  the  par  value  of  the  bonds  so  deposited;  and  any  national 
'  banking  association  now  having  bonds  on  deposit  for  the 
security  of  circulating  notes,  and  upon  which  an  amount  of 
circulating  notes  has  been  issued  less  than  the  par  value  of 
the  bonds,  shall  be  entitled,  upon  due  application  to  the  Comp- 
troller of  the  Currency,  to  receive  additional  circulating  notes 
ir.  blank  to  an  amount  which  will  increase  the  circulating  notes 
held  by  such  association  to  the  par  value  of  the  bonds  de- 
posited, such  additional  notes  to  be  held  and  treated  in  the 
same  way  as  circulating  notes  of  national  banking  associations 
heretofore  issued,  and  subject  to  all  the  provisions  of  law 
affecting  such  notes:  Provided,  That  the  circulating  notes 
furnished  to  national  banking  associations  under  the  provisions 
of  this  act  shall  be  of  the  denominations  prescribed  by  law, 
except  that  no  national  banking  association  shall,  after  the 
passage  of  this  act,  be  entitled  to  receive  from  the  Comptroller 
of  .the  Currency,  or  to  issue  or  reissue  or  place  in  circulation, 
more  than  one-third  in  amount  of  its  circulating  notes  of  the 
denomination  of  five  dollars:  And  provided  furtlier,  That  the 
total  amount  of  such  notes  issued  to  any  such  association  may 
equal  at  any  time  but  shall  not  exceed  the  amount  at  such 
time  of  its  capital  stock  actually  paid  in. 

59.  PKEPARATioisf  OF  Bank  Cieculatio:)^.  (Sec.  5172.)  In 
order  to  furnish  suitable  notes  for  circulation,  the  Comptroller 
of  the  Currency  shall,  under  the  direction  of  the  Secretary  of 
the  Treasury,  cause  plates  and  dies  to  be  engraved,  in  the  best 
manner  to  guard  against  counterfeiting  and  fraudulent  altera- 
tions, and  shall  have  printed  therefrom,  and  numbered,  such 
quantity  of  circulating  notes,  in  blank,  of  the  denominations 
of  five  dollars,  ten  dollars,  twenty  dollars,  fifty  dollars,  one 
hundred  dollars,  five  hundred  dollars,  and  one  thousand  dol- 
lars, as  may  be  required  to  supply  the  associations  entitled  to 
receive  the  same,  as  amended  by  act  of  March  14,  1900.  Such 
notes  shall  express  upon  their  face  that  they  are  secured  by 
United  States  bonds,  deposited  with  the  Treasurer  of  the 
United  States,  by  the  written  or  engraved  signatures  of  the 
Treasurer  and  Register,  and  by  the  imprint  of  the  seal  of  the 


Baxkixg.  597 

Treasury;  and  shall  also  express  upon  their  face  the  promise 
of  the  association  receiving  the  same  to  pay  on  demand, 
attested  by  the  signatures  of  the  president  or  vice-president 
and  cashier;  and  shall  bear  such  devices  and  such  other  state- 
ments, and  shall  be  in  such  form,  as  the  Secretary  of  the 
Treasury  shall,  by  regulation,  direct. 

I  60.  CiECULATiON  Shall  Bear  Charter  I^umber. —  Sec.  5 
of  the  act  of  June  20,  1874,  provides  that  the  Comptroller  of 
the  Currency  shall,  under  such  rules  and  regulations  as  the 
Secretary  of  the  Treasury  may  prescribe,  cause  the  charter 
numbers  of  the  association  to  be  printed  upon  all  national- 
bank  notes  which  may  be  hereafter  issued  by  him. 

61.  Control  of  Plates  and  Dies.  (Sec.  5173.)  The 
plates  and  special  dies  to  be  procured  by  the  Comptroller  of 
the  Currency  for  the  printing  of  such  circulating  notes  shall 
remain  under  his  control  and  direction  and  the  expenses  neces- 
sarily incurred  in  executing  the  laws  respecting  the  procuring 
of  such  notes  and  all  other  expenses  of  the  Bureau  of  the  Cur- 
rency [except  as  provided  by  sec.  3,  act  June  20,  1874,  and 
sects.  6  and  8,  act  July  12,  1882]  shall  be  paid  out  of  the 
proceeds  of  the  taxes  or  duties  assessed  and  collected  on  the 
circulation  of  national  banking  associations  under  this  title. 

62.  Examination  of  Plates  and  Dies.  (Sec.  5174.)  The 
Comptroller  of  the  Currency  shall  cause  to  be  examined,  each 
year,  the  plates,  dies,  but  pieces  [bed  pieces],  and  other  ma- 
terial from  which  the  national-bank  circulation  is  printed,  in 
whole  or  in  part,  and  file  in  his  office  annually  a  correct  list 
of  the  same.  Such  material  as  shall  have  been  used  in  the 
printing  of  the  notes  of  associations  which  are  in  liquidation, 
or  have  closed  business,  shall  bo  destroyed,  under  such  regu- 
lations as  shall  be  prescribed  by  the  Comptroller  of  the  Cur- 
rency and  approved  by  the  Secretary  of  the  Treasury.  The 
expenses  of  any  such  examination  or  destruction  shall  be  paid 
out  of  any  appropriation  made  by  Congress  for  the  special 
examination  of  national  banks  and  bank-note  plates. 

63.  Circulation,  for  what  Receivable.  (Sec.  5182.) 
After  any  association  receiving  circulating  notes  under  this 
Title  has  caused  its  promise  to  pay  such  notes  on  demand  to 
be  signed  by  the  president  or  vice-president  and  cashier  thereof, 
in  such  manner  as  to  make  them  obligatory  promisory  notes, 


598  Appendix. 

payable  on  demand  at  its  place  of  business,  sueli  association 
may  issue  and  circulate  the  same  as  money.  And  the  same 
shall  be  received  at  par  in  all  parts  of  the  United  States  in 
payment  of  taxes,  excises,  public  lands,  and  all  other  dues  to 
the  United  States,  except  duties  on  imports;  and  also  for  all 
salaries  and  other  debts  and  demands  owing  by  the  United 
States  to  individuals,  corporations,  and  associations  "within  the 
United  States,  except  interest  on  the  public  debt,  and  in  re- 
demption of  the  national  currency. 

64.  CiRcrLATioN  OF  Gold  Banks.  (Sec.  5185.)  Associa- 
tions may  be  organized  in  the  manner  prescribed  by  this  Title 
for  the  purpose  of  issuing  notes  payable  in  gold;  and  upon  the 
deposit  of  any  United  States  bonds  bearing  interest  payable  in 
gold  with  the  Treasurer  of  the  United  States,  in  the  manner 
prescribed  for  other  associations,  it  shall  be  lawful  for  the 
Comptroller  of  the  Currency  to  issue  to  the  association  making 
the  deposit  circulating  notes  of  different  denominations,  but 
none  of  them  of  less  than  five  dollars,  and  not  exceeding  in 
amount  eighty  per  centum  of  the  par  value  of  the  bonds  de- 
posited, which  shall  express  the  promise  of  the  association  to 
pay  them,  upon  presentation  at  the  office  at  which  they  are 
issued,  in  gold  coin  of  the  United  States,  and  shall  be  so 
redeemable. 

65.  WoKX-ouT  OR  Mutilated  Circulation.  (Sec.  5184.) 
It  shall  be  the  duty  of  the  Comptroller  of  the  Currency  to  re- 
ceive worn-out  or  mutilated  circulating  notes  issued  by  any 
banking  association,  and  also,  on  due  proof  of  the  destruction 
of  any  such  circulating  notes,  to  deliver  in  place  thereof  to  the 
association  other  blank  circulating  notes  to  an  equal  amount. 
Such  worn-out  or  mutilated  notes,  after  a  memorandum  has 
teen  entered  in  the  proper  books,  in  accordance  with  such  regu- 
lations as  may  be  established  by  the  Comptroller,  as  well  as  all 
circulating  notes  which  shall  have  been  paid  or  surrendered  to 
bo  canceled,  shall  be  macerated  in  presence  of  four  persons,  one 
to  be  appointed  by  the  Secretary  of  the  Treasury,  one  by  the 
Comptroller  of  the  Currency,  one  by  the  Treasurer  of  the 
United  States,  and  one  by  the  association,  under  such  regula- 
tions as  the  Secretary  of  the  Treasury  may  prescribe.  A  cer- 
tificate of  such  maceration,  signed  by  the  parties  so  appointed, 
shall  be  made  in  the  books  of  the  Comptroller,  and  a  duplicate 


Baxkixg.  599 

thereof   forwarded   to   the    association  whose    notes    are   thus 
canceled. 

66.  Provisions  for  Redeeming  CiRCULATioisr. —  Sec.  8  of 
the  act  of  June  20,  1874,  provides  that  every  association  organ- 
ized, or  to  be  organized,  under  the  provisions  of  the  said  act, 
and  of  the  several  acts  amendatory  thereof,  shall  at  all  times 
keep  and  have  on  deposit  in  the  Treasury  of  the  United  States, 
in  lawful  money  of  the  United  States,  a  sum  equal  to  five  per 
centum  of  its  circulation,  to  be  held  and  used  for  the  redemption 
of  such  circulation;  which  sum  shall  be  counted  as  a  part  of 
its  lawful  reserve,  as  provided  in  section  two  of  this  act;  and 
when  the  circulating  notes  of  any  such  associations,  assorted  or 
unassorted,  shall  be  presented  for  redemption,  in  sums  of  one 
thousand  dollars  or  any  multiple  thereof,  to  the  Treasurer  of 
the  United  States,  the  same  shall  be  redeemed  in  United  States 
notes.  All  notes  so  redeemed  shall  be  charged  by  the  Treasurer 
of  the  United  States  to  the  respective  associations  issuing  the 
same,  and  he  shall  notify  them  severally,  on  the  first  day  of 
each  month,  or  oftener,  at  his  discretion,  of  the  amount  of  such 
redemptions;  and  whenever  such  redemptions  for  any  associa- 
tion shall  amount  to  the  sum  of  five  hundred  dollars,  such  asso- 
ciation so  notified  shall  forthwith  deposit  with  the  Treasurer 
of  the  United  States  a  sum  in  United  States  notes  equal  to  the 
amount  of  its  circulating  notes  so  redeemed.  And  all  notes  of 
national  banks,  worn,  defaced,  mutilated,  or  otherwise  unfit  for 
circulation,  shall,  when  received  by  any  assistant  treasurer,  or 
at  any  designated  depositary  of  the  United  States,  be  forwarded 
to  the  Treasurer  of  the  United  States  for  redemption  as  pro- 
vided herein.  And  when  such  redemptions  have  been  so  reim- 
bursed, the  circulating  notes  so  redeemed  shall  be  forwarded  to 
the  respective  associations  by  which  they  were  issued;  but  if 
any  of  such  notes  are  worn,  mutilated,  defaced,  or  rendered 
otherwise  unfit  for  use,  they  shall  be  forwarded  to  the  Comp- 
troller of  the  Currency  and  destroyed,  and  replaced  as  now 
provided  by  law:  Provided,  That  each  of  said  associations  shall 
reimburse  to  the  Treasury  the  charges  for  transportation  and 
the  costs  for  assorting  such  notes ;  and  the  associations  hereafter 
organized  shall  also  severally  reimburse  to  the  Treasury  the 
cost  of  engraving  such  plates  as  shall  be  ordered  by  each  asso- 
ciation respectively;  and  the  amount  assessed  upon  each  associa- 


600  ArrEXDix. 

tion  shall  be  in  proportion  to  the  circulation  redeemed,  and  be 
charged  to  the  fund  on  deposit  with  the  Treasurer. 

67.  Withdrawing  Cikculatiox. —  Sec.  4  of  the  act  of  June 
20,  1874,  provides  that  any  association  organized  under  this 
act,  or  any  of  the  acts  of  which  this  is  an  amendment,  desiring 
to  withdraw  its  circulating  notes,  in  whole  or  in  part,  may,  upon 
the  deposit  of  laAvful  money  with  the  Treasurer  of  the  United 
States  in  sums  of  not  less  than  nine  thousand  dollars,  take  up 
the  bonds  which  said  association  has  on  deposit  with  the  Treas- 
urer for  the  security  of  such  circulating  notes,  which  bonds 
shall  be  assigned  to  the  bank  in  the  manner  specified  in  the 
nineteenth  section  of  the  national-bank  act;  and  the  outstanding 
notes  of  said  association,  to  an  amount  equal  to  the  legal-tender 
notes  deposited,  shall  be  redeemed  at  the  Treasury  of  the 
United  States,  and  destroyed  as  now  provided  by  law:  Pro- 
vided, That  the  amount  of  the  bonds  on  deposit  for  circulation 
shall  not  be  reduced  below  fifty  thousand  dollars. 

68.  General  Provisions  for  Withdrawing  Circulation. 
—  The  act  of  July  12,  1882,  provides:  (Sec.  8.)  That  the 
national  banks  which  shall  hereafter  make  deposits  of  lawful 
money  for  the  retirement  in  full  of  their  circulation  shall,  at 
the  time  of  their  deposit,  be  assessed  for  the  cost  of  transport- 
ing and  redeeming  their  notes  then  outstanding,  a  sum  equal 
to  the  average  cost  of  the  redemption  of  national-bank  notes 
during  the  preceding  year,  and  shall  thereupon  pay  such  assess- 
ment; and  all  national  banks  which  have  heretofore  made  or 
shall  hereafter  make  deposits  of  lawful  money  for  the  reduc- 
tion of  their  circulation  shall  be  assessed,  and  shall  pay  an 
assessment  in  the  manner  specified  i^  section  three  of  the  act 
approved  June  twentieth,  eighteen  hundred  and  seventy-four, 
for  the  cost  of  transporting  and  redeeming  their  notes  redeemed 
from  such  deposits  subsequently  to  June  thirtieth,  eighteen 
hundred  and  eighty-one. 

Sec.  9.  (As  amended  by  act  of  March  14,  1900.)  That  any 
national  banking  association  now  organized,  or  hereafter  or- 
ganized, desiring  to  withdraw  its  circulating  notes,  upon  a 
deposit  of  lawful  money  with  the  Treasurer  of  the  United 
States,  as  provided  in  section  four  of  the  act  of  June  twentieth, 
eighteen  hundred  and  seventy-four,  or  as  provided  in  this  act, 


Banking.  601 

is  authorized  to  deposit  la^vful  money  and  withdraw  a  propor- 
tionate amount  of  the  bonds  held  as  security  for  its  circulating 
notes  in  the  order  of  such  deposits:  Provided,  That  not  more 
than  three  millions  of  dollars  of  lawful  money  shall  be  depos- 
ited during  any  calendar  month  for  this  purpose:  And  provided 
further.  That  the  provisions  of  this  section  shall  not  apply  to 
bonds  called  for  redemption  by  the  Secretary  of  the  Treasury, 
nor  to  the  withdrawal  of  circulating  notes  in  conseqeuence 
thereof. 

GO.  Circulation  of  Extended  Banks. —  Sec.  6  of  the  act 
of  July  12,  1882,  provides  that  the  circulating  notes  of  any 
association  so  extending  the  period  of  its  succession  which  shall 
have  been  issued  to  it  prior  to  such  extension  shall  be  redeemed 
id  the  Treasury  of  the  United  States,  as  provided  in  section  three 
of  the  act  of  June  twentieth,  eighteen  hundred  and  seventy- 
four,  entitled  ''An  act  fixing  the  amount  of  United  States  notes, 
providing  for  redistribution  of  national  bank  currency,  and  for 
other  purposes,"  and  such  notes  when  redeemed  shall  be  for- 
warded to  the  Comptroller  of  the  Currency,  and  destroyed,  as 
now  provided  by  law;  and  at  the  end  of  three  years  from  the 
date  of  the  extension  of  the  corporate  existence  of  each  bank 
the  association  so  extended  shall  deposit  lawful  money  with  the 
Treasury  of  the  United  States  sufficient  to  redeem  the  re- 
mainder of  the  circulation  which  was  outstanding  at  the  date 
of  its  extension,  as  provided  in  sections  fifty-two  hundred  and 
twenty-two,  fifty-two  hundred  and  twenty-four,  and  fifty-two 
hundred  and  twenty-five  of  the  Revised  Statutes;  and  any  gain 
that  may  arise  from  the  failure  to  present  such  circulating  notes 
for  redemption  shall  inure  to  the  benefit  of  the  United  States; 
and  from  time  to  time,  as  such  notes  are  redeemed  or  lawful 
money  deposited  therefor  as  provided  herein,  new  circulating 
notes  shall  be  issued  as  provided  for  by  this  act,  bearing  such 
devices,  to  be  approved  by  the  Secretary  of  the  Treasury,  as 
shall  make  them  readily  distinguishable  from  the  circurating 
notes  heretofore  issued:  Provided,  however.  That  each  banking 
association  which  shall  obtain  the  benefit  of  this  act  shall  reim- 
burse to  the  Treasury  the  qost  of  preparing  the  plate  or  plates 
for  such  new  circulating  notes  as  shall  be  issued  to  it. 

70.    ClKCULATION     OF     LIQUIDATING    BanKS.        (SeC.     5225.) 

"Whenever  the  Treasurer  has  redeemed  any  of  the  notes  of  an 


002  Appendix. 

association  ^Yllicll  has  commenced  to  close  its  affairs,  he  shall 
cause  the  notes  to  be  mutilated  and  charged  to  the  redemption 
account  of  the  association;  and  all  notes  so  redeemed  by  the 
Treasurer  shall,  every  three  months,  be  certified  to  and  de- 
stroyed in  the  manner  prescribed  in  section  fifty-one  hundred 
and  eighty-four. 

71.  CiECULATiON  OF  Closed  Banks. —  Scc.  8.  of  the  act  of 
June  20,  1874,  provides:  And  it  shall  be  the  duty  of  the  Treas- 
urer, assistant  treasurers,  designated  depositaries,  and  national 
bank  depositaries  of  the  United  States  to  assort  and  return  to 
the  Treasury  for  redemption  the  notes  of  such  national  banks  as 
have  failed,  or  gone  into  voluntary  liquidation  for  the  purpose 
of  winding  up  their  affairs,  and  of  such  as  shall  hereafter  so 
fail  or  go  into  liquidation. 

72.  Kegulations  for  Redemption  Records.  (Sec.  5232.) 
The  Secretary  of  the  Treasury  may,  from  time  to  time,  make 
such  regulations  respecting  the  disposition  to  be  made  of  cir- 
culating notes  after  presentation  at  the  Treasury  of  the  United 
States  for  payment,  and  respecting  the  perpetuation  of  the 
evidence  of  the  pa\anent  thereof,  as  may  seem  to  him  proper. 

73.  Redeemed  Xotes  to  be  Canceled.  (Sec.  5233.)  All 
notes  of  national  banking  associations  presented  at  the  Treasury 
01  the  United  States  for  payment  shall,  on  being  paid,  be 
canceled. 

74.  Redemption  in  United  States  Notes. —  Sec.  3  of  the 
act  approved  June  20,  1874,  provides  that  when  the  circulating 
notes  of  any  such  associations,  assorted  or  unassorted,  shall  be 
presented  for  redemption,  in  sums  of  one  thousand  dollars  or 
any  multiple  thereof,  to  the  Treasurer  of  the  United  States,  the 
same  shall  be  redeemed  in  United  States  notes, 

75.  Disposition  of  Redemption  Account. —  Sec.  6  of  the 
act  of  July  14,  1890,  provides  that  upon  the  passage  of  this  act 
the  balances  standing  with  the  Treasurer  of  the  United  States 
to  the  respective  credits  of  national  banks  for  deposits  made  to 
redeem  the  circulating  notes  of  such  banks,  and  all  deposits 
thereafter  received  for  like  purpose,  shall  be  covered  into  the 
Treasury  as  a  miscellaneous  receipt,  and  the  Treasury  of  the 
U'nited  States  shall  redeem  from  the  general  cash  in  the  Treas- 
ury the  circulating  notes  of  said  banks  which  may  come  into 
his  possession  subject  to  redemption;  and  upon  the  certificate 


Banking.  •  603 

of  the  Comptroller  of  the  Ciirrency  that  such  notes  have  heen 
received  by  him  and  that  they  have  been  destroyed  and  that 
no  new  notes  will  be  issued  in  their  place,  reimbursement  of 
their  amount  shall  be  made  to  the  Treasurer,  under  such  regu- 
lations as  the  Secretary  of  the  Treasury  may  prescribe,  from  an 
appropriation  hereby  created,  to  be  known  as  "national-bank 
notes,  redemption  account."  But  the  provisions  of  this  act 
shall  not  apply  to  the  deposits  received  under  section  three  of 
the  act  of  June  twentieth,  eighteen  hundred  and  seventy-four, 
requiring  every  national  bank  to  keep  in  lawful  money  with  the 
Treasurer  of  the  United  States  a  sum  equal  to  five  per  centum 
of  its  circulation,  to  be  held  and  used  for  the  redemption  of  its 
circulating  notes;  and  the  balance  remaining  of  the  deposits  so 
covered  shall,  at  the  close  of  each  month,  be  reported  on  the 
monthly  public  debt  statement  as  debt  of  the  United  States 
bearing  no  interest. 

76.  Redej^lptign  of  Incomplete  Ciecitlatign. — The  act 
of  July  28,  1892,  provides  that  the  provisions  of  the  Revised 
Statutes  of  the  United  States,  providing  for  the  redemption  of 
national-bank  notes,  shall  apply  to  all  national-bank  notes  that 
have  been  or  may  be  issued  to,  or  received  by,  any  national 
bank,  notwithstanding  such  notes  may  have  been  lost  by  or 
stolen  from  the  bank  and  put  in  circulation  without  the  signa- 
ture or  upon  the  forged  signature  of  the  president  or  vice- 
president  and  cashier. 

77.  Banks  Take  Cieculatign  at  Pae.  (Sec.  5196.) 
Every  national  banking  association  formed  or  existing  under 
this  Title  shall  take  and  receive  at  par,  for  any  debt  or  liability 
tj  it,  any  and  all  notes  or  bills  issued  by  any  lawfully  organized 
national  banking  association.  But  this  provision  shall  not  apply 
to  any  association  organized  for  the  purpose  of  issuing  notes 
payable  in  gold. 

78.  Issue  gf  Other  Notes  Prghibited.  (Sec.  5183.) 
]^o  national  banking  association  shall  issue  post  notes  or  any 
other  notes  to  circulate  as  money  than  such  as  are  authorized 
by  the  provisions  of  this  Title. 

79.  Feaudulent  ISTgtes  to  be  Maeked. —  Sec.  5  of  the 
act  of  June  30,  1876,  provides  that  all  United  States  officers 
charged  with  the  receipt  or  disbursement  of  public  moneys,  and 
all  officers  of  national  banks,  shall  stamp  or  write  in  plain  let- 


604  Appendix. 

ters  the  word  '^  counterfeit,"  "  altered,"  or  ''  worthless,"  upon, 
all  fraudulent  notes  issued  in  the  form  of  and  intended  to  cir- 
culate as  money  which  shall  be  presented  at  their  places  of  busi- 
ness; and  if  such  officer  shall  wrongfully  stamp  any  genuine 
note  of  the  United  States,  or  of  the  national  banks,  they  shall, 
upon  presentation,  redeem  such  notes  at  the  face  value  thereof. 


TAX    ON    CIRCULATION. 

80.  Tax  on  circulation.  86.  Tax      on      unauthorized     circu- 

81.  Semiannual      return     of     circu-  lation. 

lation.  87.  Semiannual  return     of     taxable 

82.  Proceedings  on  default.  circulation. 

83.  Enforcing  tax  on  circulation.  88.  Failure  to  make  such  return. 

84.  Refunding  excess  tax.  89.  Tax    on    converted      bank   circu- 

85.  Circulation,  when   exempt   from  lation. 

tax.  90.  Tax  provisions  restricted. 

91.  Taxation  of  notes,  etc. 

80.  Tax  on  Circulation.  (Sec.  5214.)  In  lieu  of  all  ex- 
isting taxes,  every  association  shall  pay  to  the  Treasurer  of  the 
United  States,  in  the  months  of  January  and  July,  a  duty  of 
one-half  of  one  per  centum  each  half  year  upon  the  average 
amount  of  its  notes  in  circulation.  Section  13  of  the  act  of 
Congress  aj^proved  March  14,  1900,  provides  that  every  national 
banking  association  having  on  deposit,  as  jn'ovided  by  law, 
bonds  of  the  United  States  bearing  interest  at  the  rate  of  two 
per  centum  per  annum,  issued  under  the  provisions  of  this  act, 
to  secure  its  circulating  notes,  shall  pay  to  the  Treasurer  of 
the  United  States,  in  the  months  of  January  and  July,  a  tax  of 
one-fourth  of  one  per  centum  each  half  year  upon  the  average 
amount  of  such  of  its  notes  in  circulation  as  are  based  upon  the 
deposit  of  said  two  per  centum  bonds ;  and  such  taxes  shall  be 
in  lieu  of  existing  taxes  on  its  notes  in  circulation  imposed  by 
section  fifty-two  hundred  and  fourteen  of  the  Revised  Statutes. 

81.  Semiannual  Return  of  Circulation.  (Sec.  5215.) 
In  order  to  enable  the  Treasurer  to  assess  the  duties  imposed  by 
the  preceding  sections,  each  association  shall,  within  ten  days 
from  the  first  days  of  January  and  July  of  each  year,  make  a 
return,  under  the  oath  of  its  president  or  cashier,  to  the  Treas- 
urer of  the  United  States,  in  such  form  as  the  Treasurer  may 


Banking.  605 

prescribe,  of  the  average  amount  of  its  notes  in  circulation  for 
the  six  months  next  preceding  the  most  recent  first  day  of 
January  or  July.  Every  association  which  fails  so  to  make 
such  return  shall  be  liable  to  a  penalty  of  two  hundred  dollars, 
to  be  collected  either  out  of  the  interest  as  it  may  become  due 
such  association  on  the  bonds  deposited  with  the  Treasurer,  or, 
at  his  option,  in  the  manner  in  which  penalties  are  to  be  col- 
lected of  other  corporations  under  the  laws  of  the  United 
States. 

82.  Proceedings  on  Default.  (Sec.  5216.)  Whenever 
any  association  fails  to  make  the  half  yearly  return  required 
by  the  preceding  section,  the  duties  to  be  paid  by  such  associa- 
tion shall  be  assessed  upon  the  amount  of  notes  delivered  to 
such  association  by  the  Comptroller  of  the  Currency. 

83.  Enforcing  Tax  on  Circulation.  (Sec.  5217.) 
Whenever  an  association  fails  to  pay  the  duties  imposed  by  the 
three  preceding  sections,  the  sums  due  may  be  collected  in  the 
manner  provided  for  the  collection  of  United  States  taxes  from 
other  corporations;  or  the  Treasurer  may  reserve  the  amount 
out  of  the  interest,  as  it  may  become  due,  on  the  bonds  de- 
posited with  him  by  such  defaulting  association. 

84.  Kefunding  Excess  Tax.  (Sec.  5218.)  In  all  cases 
where  an  association  has  paid  or  may  pay  in  excess  of  what 
may  be  or  has  been  found  due  from  it,  on  account  of  the  duty 
required  to  be  paid  to  the  Treasurer  of  theUnited  States,  the 
association  may  state  an  account  therefor,  which,  on  being  cer- 
tified by  the  Treasurer  of  the  United  States,  and  found  correct 
by  the  Comptroller  of  the  Treasury,  shall  be  refunded  in  the 
ordinary  manner  by  warrant  on  the  Treasury. 

85.  Circulation,  when  Exempt  from  Tax.  (Sec.  3411. ^ 
Whenever  the  outstanding  circulation  of  any  bank,  associa- 
tion, corporation,  company,  or  person  is  reduced  to  an  amount 
not  exceeding  five  per  centum  of  the  chartered  or  declared 
capital  existing  at  the  time  the  same  was  issued,  said  circula- 
tion shall  be  free  from  taxation ;  and  whenever  any  bank  which 
has  ceased  to  issue  notes  for  circulation  deposits  in  the  Treasury 
of  the  United  States,  in  lawful  money,  the  amount  of  its  cut- 
standing  circulation,  to  be  redeemed  at  par,  under  such  regula- 
tions as  the  Secretary  of  the  Treasury  shall  prescribe,  it  shall 
be  exempt  from  any  tax  upon  such  circulation. 


606  Appendix. 

86.  Tax  on  Unauthokized  Circulation. —  Sees.  19,  20, 
and  21  of  the  act  of  February  8,  1875,  provide: 

Sec.  19.  That  every  person,  firm,  association,  other  than 
national-bank  associations,  and  every  corporation,  State  bank, 
or  State  banking  association  shall  pay  a  tax  of  ten  per  centum 
on  the  amount  of  their  own  notes  used  for  circulation  and  paid 
out  by  them. 

Sec.  20.  That  every  such  person,  firm,  association,  corpora- 
tion, State  bank,  or  State  banking  association,  and  also  every 
national  banking  association,  shall  pay  a  like  tax  of  ten  per 
centum  on  the  amount  of  notes  of  any  person,  firm,  association, 
other  than  a  national  banking  association,  or  of  any  corporation, 
State  bank,  or  State  banking  association,  or  of  any  town,  city, 
or  municipal  corporation,  used  for  circulation  and  paid  out  by 
them. 

Sec.  21.  That  the  amount  of  such  circulating  notes,  and  of 
the  tax  due  thereon,  shall  be  returned,  and  the  tax  paid  at  the 
same  time,  and  in  the  same  manner,  and  with  like  penalties  for 
failure  to  return  and  pay  the  same,  as  provided  by  law  for  the 
return  and  payment  of  taxes  on  deposits,  capital,  and  circula- 
tion imposed  by  the  existing  provisions  of  internal-revenue  law. 

87.  Semiannual  Retuen  of  Taxable  Circulation.  (Sec. 
3414.)  A  true  and  complete  return  of  the  monthly  amount  of 
circulation,  as  aforesaid,  and  of  the  monthly  amount  of  notes 
of  persons,  town,  city,  or  municipal  corporation.  State  banks, 
or  State  banking  associations  paid  out  as  aforesaid  for  the 
previous  six  months,  shall  be  made  and  rendered  in  duplicate 
on  the  first  day  of  December  and  the  first  day  of  June  by  each 
of  such  banks,  associations,  corporations,  companies,  or  persons, 
with  a  declaration  annexed  thereto,  under  the  oath  of  such 
person,  or  of  the  president  or  cashier  of  such  bank,  association, 
corporation,  or  company,  in  such  form  and  manner  as  may  be 
prescribed  by  the  Commissioner  of  Internal  Revenue,  that  the 
same  contains  a  true  and  faithful  statement  of  the  amounts 
subject  to  tax,  as  aforesaid ;  and  one  copy  shall  be  transmitted 
to  the  collector  of  the  district  in  which  any  such  bank,  associa- 
tion, corporation,  or  company  is  situated,  or  in  which  such 
person  has  liis  place  of  business,  and  one  copy  to  the  Commis- 
sioner of  Internal  Revenue. 


Banking.  607 

88.  Failure  to  make  such  Return.  (Sec.  3415.)  In  de- 
fault of  the  returns  provided  in  the  preceding  section  the 
amount  of  circulation,  and  notes  of  persons,  town,  city,  and 
municipal  corporations,  State  banks,  and  State  banking  asso- 
ciations paid  out,  as  aforesaid,  shall  be  estimated  by  the  Com- 
missioner of  Internal  Revenue,  upon  the  best  information  he 
can  obtain.  And  for  any  refusal  or  neglect  to  make  return  and 
payment  any  such  bank,  association,  corporation,  company,  or 
person  so  in  default  shall  pay  a  penalty  of  two  hundred  dollars, 
besides  the  additional  penalty  and  forfeitures  provided  in  other 
cases. 

89.  Tax  on  Converted  Bank  Circulation.  (Sec.  3416.) 
Whenever  any  State  bank  or  banking  association  has  been  con- 
verted into  a  national  banking  association,  and  such  national 
banking  association  has  assumed  the  liabilities  of  such  State 
bank  or  banking  association,  including  the  redemption  of  its 
bills,  by  any  agreement  or  understanding  whatever  with  the 
representatives  of  such  State  bank  or  banking  association,  such 
national  banking  association  shall  be  held  to  make  the  required 
return  and  payment  on  the  circulation  outstanding,  so  long  as 
such  circulation  shall  exceed  five  per  centum  of  the  capital 
before  such  conversion  of  such  State  bank  or  banking  associa- 
tion. 

90.  Tax  Provisions  Restricted.  (Sec.  3417.)  The  pro- 
visions of  this  chapter  relating  to  the  tax  on  the  circulation  of 
banks  and  to  their  returns,  except  as  contained  in  sections 
thirty-four  hundred  and  eleven,  thirty-four  hundred  and  twelve, 
thirty-four  hundred  and  thirteen,  and  thirty-four  hundred  and 
sixteen,  and  such  parts  of  sections  thirty-four  hundred  and 
fourteen  and  thirty-four  hundred  and  fifteen  as  relate  to  the 
tax  of  ten  per  centum  on  certain  notes,  shall  not  apply  to 
associations  wdiich  are  taxed  under  and  by  virtue  of  Title 
"  National  Banks." 

91.  Taxation  of  ^N^otes,  etc.  (Sec.  3701.)  All  stocks, 
bonds,  Treasury  notes,  and  other  obligations  of  the  United 
States  shall  be  exempt  from  taxation  by  or  under  State  or 
municipal  or  local  authority.  The  act  of  August  13,  1894, 
provides:    (Sec.  1.)     The  circulating  notes  of  national  banking 


G08 


Appendix. 


as30ciations  and  United  States  legal-tender  notes  and  other 
notes  and  certifieates  of  the  United  States,  payable  on  demand 
and  circulating  or  intended  to  circulate  as  currency,  and  gold, 
silver,  or  other  coin  shall  be  subject  to  taxation  as  money  on 
hand  or  on  deposit  under  the  laws  of  any  State  or  Territory: 
Provided,  That  any  such  taxation  shall  be  exercised  in  the  same 
manner  and  at  the  same  rate  that  any  such  State  or  Territory 
shall  tax  money  or  currency  circulating  as  money  within  its 
jurisdiction. 

Sec.  2,  That  the  provisions  of  this  act  shall  not  be  deemed 
or  held  to  change  existing  laws  in  respect  of  the  taxation  of 
national  banking  associations. 


REGULATION  OF  THE   BANKING  BUSINESS. 


92.  Laws    governing    certain    asso-  110. 

ciations.                          '  111, 

93.  Place  of  business. 

94.  Reserve  cities    and    reserve    re-  112. 

requirements.  113. 

95.  Eeserve  not  maintained. 

96.  Reserve         agents'         balances  114. 

counted  as  reserve.  115. 

97.  Clearin-liouse    certificates 

coiuited  as  reserve.  116. 

98.  Redemption  fund  counted  as  re- 

serve. 117. 

99.  United  States  note  certificates 

counted  as  reserve.  118. 

100.  Redemption     of     such     certifi-  119. 

cates.  120. 

101.  United   States  gold   certificates  121. 

counted  as  reserve. 

102.  Reserve   recjuirements    for   gold  122. 

banks.  123. 

103.  Reserve   deposit   in   central   re-  124. 

serve  city. 

104.  Additional  reserve  cities.  125. 

105.  Additional       central        reserve  126. 

cities  127. 

106.  Real  estate.  128. 

107.  Interest. 

108.  Penalty   for   unlawful   interest.  129. 

109.  Surplus  and  dividends.  130. 


Restriction  on  loans. 

Associations  must  not  hold 
their  own  stock. 

Restriction  on  bank's  liability. 

Improper  use  of  bank  circula- 
tion. 

Unearned  dividends  prohibited. 

Assessment  for  impairment  of 
capital. 

Provision  for  enforcement  of 
assessment. 

Prohibition  against  uncurrent 
notes. 

List  of  shareholders. 

Reports  of  condition. 

Verification  of  such  reports. 

Reports  of  dividends  and  earn- 
ings. 

Penalty  for  failure  to  report. 

Reports  of  other  banks. 

State  taxation  of  national 
banks. 

National-bank  examiners. 

Qualification  for  examiner. 

Compensation  of  examiners. 

Examinations  in  District  of 
Columbia. 

Limitation  of  visitorial  powers. 

Use  of  "  National  "  in  titles. 


92.  T.k.vws  Governing  Certain  Associations.  (Sec.  5157.) 
The  provisions  of  chapters  two,  three,  and  four  [three,  five, 
and  seven  of  this  edition]  of  this  Title,  which  are  expressed 
without  restrictive  words,    as  applying  to  "  national  banking 


Baistking.  609 

associations,"  or  to  '"  associations,"  apply  to  all  associations  or- 
ganized to  carry  on  the  business  of  banking  under  any  act  of 
Congi-ess, 

93.  Place  of  Busi^stess.  (Sec.  5190.)  The  usual  business 
of  each  national  banking  association  shall  be  transacted  at  an 
office  or  banking  house  located  in  the  place  specified  in  its 
organization  certificate. 

94.  Reserve  Cities  axd  Reserve  Requirements.  (Sec. 
5191.)  Every  national  banking  association  in  either  of  the  fol- 
lowing cities:  Albany,  Baltimore,  Boston,  Cincinnati,  Chicago, 
Cleveland,  Detroit,  Louisville,  Milwaukee,  Xew  Orleans,  Xew 
York,  Philadelphia,  Pittsburgh,  Saint  Louis,  San  Francisco, 
and  Washington,  shall  at  all  times  have  on  hand,  in  lawful 
money  of  the  L'nited  States,  an  amount  equal  to  at  least  twenty- 
five  per  centum  of  the  aggregate  amount  of  its  deposits  in  all 
respects;  and  every  other  association  shall  at  all  times  have 
on  hand,  in  lawful  money  of  the  United  States,  an  amount 
equal  to  at  least  fifteen  per  centum  of  the  aggregate  amount  of 
its  deposits  in  all  respects. 

95.  Reserve  not  Maintained.  (Sec.  5191.)  Whenever 
the  lawful  money  of  any  association  in  any  of  the  cities  named 
shall  be  below  the  amount  of  twenty-five  per  centum  of  its  de- 
posits, and  whenever  the  lawful  money  of  any  other  associa- 
tion shall  be  below^  fifteen  per  centum  of  its  deposits,  such 
association  shall  not  increase  its  liabilities  by  making  any  new 
loans  or  discounts  otherwise  than  by  discounting  or  purchasing 
bills  of  exchange  payable  at  sight,  nor  make  any  dividend  of 
its  profits  until  the  required  proportion  between  the  aggregate 
amount  of  its  deposits  and  its  lawful  money  of  the  United 
States  has  been  restored.  And  the  Comptroller  of  the  Cur- 
rency may  notify  any  association,  whose  lawful-money  re- 
serve shall  be  below  the  amount  above  required  to  be  kept  on 
hand,  to  make  good  such  reserve;  and  if  such  association  shall 
fail  for  thirty  days  thereafter  so  to  make  good  its  reserve  of 
lawful  money,  the  Comptroller  may,  with  the  concurrence  of 
the  Secretary  of  the  Treasury,  appoint  a  receiver  to  wind  up 
the  business  of  the  association,  as  provided  in  section  fifty- 
two  hundred  and  thirty-four. 

96.  Reserve  Agents'  Balances  Counted  as  Reserve. 
(Sec.  5192.)     Three-fifths  of  the  reserve  of  fifteen  per  centum 

39 


CIO  Appendix. 

required  by  the  preceding  section  to  be  kept  may  consist  of 
balances  due  to  an  association  from  associations  approved  bv 
the  Comptroller  of  the  Currency,  organized  under  the  act  of 
June  three,  eighteen  hundred  and  sixty-four,  or  under  this 
Title,  and  doing  business  in  the  cities  of  Albany,  Baltimore, 
Boston,  Charleston,  Chicago,  Cincinnati,  Cleveland,  Detroit, 
Louisville,  Milwaukee,  New  Orleans,  New  York,  Philadelphia, 
Pittsburg,  Bichmond,  Saint  Louis,  San  Francisco,  and  Wash- 
ington. 

97.  Cleakixg-House  Cektificates  Counted  as  Beserve. 
—  Clearing-house  certificates,  representing  specie  or  lawful 
money  specially  deposited  for  the  purpose,  of  any  clearing- 
house association  shall  also  be  deemed  to  be  lawful  money  in 
the  possession  of  any  association  belonging  to  such  clearing 
house  holding  and  o^^^ling  such  certificate,  within  the  pre- 
ceding section. 

98-  Bedemption  Fund  Counted  as  Beserve. —  Sec.  3  of 
the  act  of  June  20,  1874,  provides  that  the  five  per  cent  re- 
demption fund,  which  shall  at  all  times  be  kept  on  deposit 
with  the  Treasurer  of  the  United  States,  shall  be  counted  as 
a  part  of  the  lawful  reserve. 

99.  United  States  Note  Certificates  Counted  as  Be- 
serve. (Sec.  5193.)  The  Secretary  of  the  Treasuty  may  re- 
ceive United  States  notes  on  deposit,  without  interest,  from 
any  national  banking  associations,  in  sums  of  not  less  than  ten 
thousand  dollars,  and  issue  certificates  therefor  in  such  form  as 
he  may  prescribe,  in  denominations  of  not  less  than  five 
thousand  dollars,  and  payable  on  demand  in  United  States 
notes  at  the  place  where  the  deposits  were  made.  The  notes 
so  deposited  shall  not  be  counted  as  part  of  the  law^ful-money 
reserve  of  the  association;  but  the  certificates  issued  therefor 
may  be  counted  as  part  of  its  lawful-money  reserve,  and  may 
be  accepted  in  the  settlement  of  clearing-house  balances  at 
the  places  where  the  deposits  therefor  were  made.  (Bepealed 
March  14,  1900.) 

100.  Bedemption  of  such  Certificates.  (Sec.  5194.) 
The  power  conferred  on  the  Secretary  of  the  Treasury,  by  the 
preceding  section  shall  not  be  exercised  so  as  to  create  any 
expansion  or  contraction  of  the  currency;  and  United  States 
notes  for  which  certificates  are  issued  under  that  section,  or 


Ba^^king.  611 

other  United  States  notes  of  like  amount,  shall  be  held  as 
special  deposits  in  the  Treasury  and  used  only  for  redemp- 
tion of  such  certificates. 

101.  UiN'iTED  States  Gold  Certificates  Counted  as  Re- 
SEEVE. —  Section  12  of  the  act  of  July  12,  1882,  provides  that 
the  Secretary  of  the  Treasury  is  authorized  and  directed  to  re- 
ceive deposits  of  gold  coin  with  the  Treasurer  or  assistant 
treasurers  of  the  United  States,  in  sums  not  less  than  twenty 
dollars,  and  to  issue  certificates  therefor  in  denominations  of 
not  less  than  twenty  dollars  each,  corresponding  wdtli  the  de- 
nominations of  United  States  notes.  The  coin  deposited  for 
or  representing  the  certificates  of  deposit  shall  be  retained  in 
the  Treasury  for  the  payment  of  the  same  on  demand.  Said 
certificates  shall  be  receivable  for  customs,  taxes,  and  all  pub- 
lic dues,  and  when  so  received  may  be  reissued;  and  such  cer- 
tificates, as  also  silver  certificates,  when  held  by  any  national 
banking  association,  shall  be  counted  as  part  of  its  lawful  re- 
serve; and  no  national  banking  association  shall  be  a  member 
of  any  clearing  house  in  which  such  certificates  shall  not  be 
receivable  in  the  settlement  of  clearing-house  balances:  Pro- 
vided, That  the  Secretary  of  the  Treasury  shall  suspend  the 
issue  of  such  gold  certificates  whenever  the  amount  of  gold 
coin  and  gold  bullion  in  the  Treasury  reserved  for  the  redemp- 
tion of  United  States  notes  falls  below  one  hundred  millions 
of  dollars;  and  the  provisions  of  section  fifty-two  hundred  and 
seven  of  the  Eevised  Statutes  shall  be  applicable  to  the  cer- 
tificates herein  authorized  and  directed  to  be  issued. 

102.  Reserve  Requirements  for  Gold  Banks.  (Sec. 
5186.)  Every  association  organized  for  the  purpose  of  issuing 
notes  payable  in  gold  shall  at  all  times  keep  on  hand  not  less 
than  twenty-five  per  centum  of  its  outsanding  circulation,  in 
gold  or  silver  coin  of  the  United  States;  and  shall  receive  at 
par  in  the  payment  of  debts  the  gold  notes  of  every  other  such 
association  which  at  the  time  of  such  payment  is  redeeming 
its  circulating  notes  in  gold  coin  of  the  United  States,  and  shall 
be  subject  to  all  the  provisions  of  this  Title:  Provided,  That, 
in  applying  the  samo  to  associations  organized  for  issuing  gold 
notes,  the  terms  "  lawful  money  "  and  "  lawful  money  of  tho 
United  States  "  shall  be  construed  to  mean  gold  or  silver  coin 
of  the  United  States:  and  the  circulation  of  such  association 


612  Appendix. 

shall  not  be  within  the  limitation  of  circulation  mentioned  in 
this  Title. 

103.  Eesekve  Deposit  in  Central  Reserve  City.  (Sec. 
5195.)  Each  association  organized  in  any  of  the  cities  named  in 
section  fifty-one  hundred  and  ninety-one  may  keep  one-half 
of  its  lawful-money  reserve  in  cash  deposits  in  the  city  of  New 
York.  But  the  foregoing  provisions  shall  not  apply  to  associa- 
tions organized  and  located  in  the  city  of  San  Francisco  for  the 
purpose  of  issuing  notes  payable  in  gold.  This  section  shall 
not  relieve  any  asociation  from  its  liability  to  redeem  its  cir- 
culating notes  at  its  own  counter  at  par  in  lawful  money  on 
demand. 

101.  Additional  Reserve  Cities  —  Sec.  1  of  the  act  of 
March  3,  1887,  as  amended  by  the  act  of  March  3,  1903,  pro- 
vides that  whenever  three-fourths  in  number  of  the  national 
banks  located  in  any  city  of  the  United  States  having  a  popu- 
lation of  twenty-five  thousand  people  shall  make  application 
to  the  Comptroller  of  the  Curency,  in  writing,  asking  that  the 
name  of  the  city  in  which  such  banks  are  located  shall  be 
added  to  the  cities  named  in  sections  fifty-one  hundred  and 
ninety-one  and  fifty-one  hundred  and  ninety-two  of  the  Re- 
vised Statutes,  the  Comptroller  shall  have  authority  to  grant 
such  request,  and  every  bank  located  in  such  city  shall  at  all 
times  thereafter  have  on  hand,  in  lawful  money  of  the  United 
States,  an  amount  equal  to  at  least  twenty-five  per  centum 
of  its  deposits,  as  provided  in  sections  fifty-one  hundred  and 
ninety-one  and  fifty-one  hundred  and  ninety-fiA^e  of  the  Revised 
Statutes. 

105.  Additional  Central  Reserve  Cities. — Sec.  2  of  the 
act  of  March  3,  1887,  provides  that  whenever  three-fourths  in 
number  of  the  national  banks  located  in  any  city  of  the  United 
States  having  a  population  of  two  hundred  thousand  people 
shall  make  application  to  the  Comptroller  of  the  Currency, 
in  writing,  asking  that  such  city  may  be  a  central  reserve  city, 
like  the  city  of  New  York,  in  which  one-half  of  the  lawful- 
money  reserve  of  the  national  banks  located  in  other  reserve 
cities  may  be  deposited,  as  provided  in  section  fifty-one  hundred 
and  ninety-five  of  the  Revised  Statutes,  the  Comptroller  shall 
have  authority,  with  the  approval  of  the  Secretaiy  of  the  Treas- 
ury, to  grant  such  request,  and  every  bank  located  in  such  city 


Bankog.  613 

shall  at  all  times  thereafter  have  on  hand,  in  la^vful  money 
of  the  United  States,  twenty-five  per  centum  of  its  deposits,  as 
provided  in  section  fifty-one  hundred  and  ninety-one  of  the 
Revised  Statutes. 

106.  Real  Estate.  (Sec.  5137.)  A  national  banking 
association  may  purchase,  hold,  and  convey  real  estate  for  the 
following  purposes,  and  for  no  others  : 

First.  Such  as  shall  be  necessary  for  its  immediate  accom- 
modation in  the  transaction  of  its  business. 

Second.  Such  as  shall  be  mortgaged  to  it  in  good  faith  by 
way  of  security  for  debts  previously  contracted. 

Third.  Such  as  shall  be  conveyed  to  it  in  satisfaction  of 
debts  previously  contracted  in  the  course  of  its  dealings. 

Fourth.  Such  as  it  shall  purchase  at  sales  under  judgments, 
decrees,  or  mortgages  held  by  the  association,  or  shall  pur- 
chase to  secure  debts  due  to  it. 

But  no  such  association  shall  hold  the  possession  of  any  real 
estate  under  mortgage,  or  the  title  and  possession  of  any  real 
estate  purchased  to  secure  any  debts  due  to  it,  for  a  longer 
period  than  five  years. 

107.  Interest.  (Sec.  5197.)  Any  association  may  take, 
receive,  reserve,  and  charge  on  any  loan  or  discount  made,  or 
upon  any  note,  bill  of  exchange,  or  other  evidences  of  debt, 
interest  at  the  rate  allowed  by  the  laws  of  the  State,  Territory, 
or  District  where  the  bank  is  located,  and  no  more,  except 
that  where  by  the  laws  of  any  State  a  different  rate  is  limited 
for  banks  of  issue  organized  under  State  laws,  the"  rate  so 
limited  shall  be  allowed  for  associations  organized  or  existing 
in  any  such  State  under  this  Title.  When  no  rate  is  fixed  by 
the  laws  of  the  State,  or  Territory",  or  District,  the  bank  may 
take,  receive,  reserve,  or  charge  a  rate  not  exceeding  seven  per 
centum,  and  such  interest  may  be  taken  in  advance,  reckoning 
the  days  from  which  the  note,  bill,  or  other  evidence  of  debt 
has  to  run.  And  the  purchase,  discount,  or  sale  of  a  bona  fide 
bill  of  exchange,  payable  at  another  place  than  the  place  of 
such  purchase,  discount,  or  sale,  at  not  more  than  current  rate 
of  exchange  for  sight  drafts  in  addition  to  the  interest,  shall 
not  be  considered  as  taking  or  receiving  a  greater  rate  of  in- 
terest. 


614  Appexdix. 

108.  Penalty  foe  Unlawful  Ia^terest.  (Sec.  5198.) 
The  taking,  receiving,  reserving,  or  charging  a  rate  of  interest 
greater  than  is  allowed  bv  the  preceding  section,  when  know- 
ingly done,  shall  be  deemed  a  forfeiture  of  the  entire  interest 
which  the  note,  bill,  or  other  evidence  of  debt  carried  with  it, 
or  which  has  been  agreed  to  be  paid  thereon.  In  case  the 
greater  rate  of  interest  has  been  paid,  the  person  by  whom 
it  has  been  paid,  or  his  legal  representatives,  may  recover  back, 
in  an  action  in  the  nature  of  an  action  of  debt,  twice  the  amount 
of  the  interest  thus  paid  from  the  association  taking  or  receiv- 
ing the  same,  provided  such  action  is  commenced  within  two 
years  from  the  time  the  usurious  transaction  occurred. 

109.  Surplus  and  Dividends.  (Sec.  -5199.)  The  directors 
of  any  association  may  semiannually  declare  a  dividend  of  so 
much  of  the  net  profits  of  the  association  as  they  shall  judge 
expedient ;  but  each  association  shall,  before  the  declaration  of 
a  dividend,  carry  one-tenth  part  of  its  net  profits  of  the  pre- 
ceding half  year  to  its  surplus  fund  until  the  same  shall  amount 
to  twenty  per  centum  of  its  capital  stock. 

110.  Restriction  on  Loans.  (Sec.  5200.)  The  total 
liabilities  to  any  association,  of  any  person,  or  of  any  com- 
pany, corporation,  or  firm  for  money  borrowed,  including  in 
the  liabilities  of  a  company  or  firm  the  liabilities  of  the  sev- 
eral members  thereof,  shall  at  no  time  exceed  one-tenth  part 
of  the  amount  of  the  capital  stock  of  such  association  actually 
paid  in.  But  the  discount  of  bills  of  exchange  drawn  in  good 
faith  against  actually  existing  values,  and  the  discount  of  com- 
mercial or  business  paper  actually  owned  by  the  person  ne- 
gotiating the  same  shall  not  be  considered  as  money  borrowed. 

111.  Associations  must  not  Hold  their  Own  Stock. 
(Sec.  5201.)  Xo  association  shall  make  any  loan  or  discount 
on  the  security  of  the  shares  of  its  own  capital  stock,  nor  be  the 
purchaser  or  holder  of  any  such  shares,  unless  such  security 
or  purchase  shall  be  necessary  to  prevent  loss  upon  a  debt 
previously  contracted  in  good  faith ;  and  stock  so  purchased 
or  acquired  shall,  within  six  months  from  the  time  of  its  pur- 
chase, be  sold  or  disposed  of  at  public  or  private  sale ;  or,  in 
default  thereof,  a  receiver  may  be  appointed  to  close  up  the 
business  of  the  association,  according  to  section  fifty-two  hun- 
dred and  thirtv-four. 


Banking.  615 

112.  Restriction  on  Bank's  Liability.  (Sec.  5202.)  Xo 
association  shall  at  any  time  be  indebted,  or  in  any  way  liable, 
to  an  amount  exceeding  the  amount  of  its  capital  stock  at  such 
time  actually  paid  in  and  remaining  undiminished  by  losses  or 
otherwise,  except  on  account  of  demands  of  the  nature  fol- 
lowing : 

First.   Xotes  of  circulation. 

Second.  Moneys  deposited  with  or  collected  by  the  associa- 
tion. 

Third.  Bills  of  exchange  or  drafts  drawn  against  money 
actually  on  deposit  to  the  credit  of  the  association,  or  due 
thereto. 

Fourth.  Liabilities,  to  the  stockholders  of  the  association  for 
dividends  and  reserve  profits. 

113.  Improper  L"se  of  Bank  Circulation.  (Sec.  5208.) 
Xo  association  shall,  either  directly  or  indirectly,  pledge  or 
hypothecate  any  of  its  notes  of  circulation  for  the  purpose  of 
procuring  money  to  be  paid  in  on  its  capital  stock,  or  to  be 
used  in  its  banking  operations,  or  otherwise ;  nor  shall  any 
association  use  its  circulating  notes,  or  any  part  thereof,  in 
any  manner  or  form,  to  create  or  increase  its  capital  stock. 

114.  L'nearned  Dividends  Prohibited.  (Sec.  5204.)  Xo 
association,  or  any  member  thereof,  shall,  during  the  time  it 
shall  continue  its  banking  operations,  withdraw,  or  permit  to 
be  withdrawn,  either  in  the  form  of  dividends  or  otherwise, 
any  portion  of  its  capital.  If  losses  have  at  any  time  been 
sustained  by  any  such  association  equal  to  or  exceeding  its 
undivided  profits  then  on  hand,  no  dividend  shall  be  made ;  and 
no  dividend  shall  ever  be  made  by  any  association,  while  it 
continues  its  banking  operations,  to  an  amount  greater  than  its 
net  profits  then  on  hand,  deducting  therefrom  its  losses  and 
bad  debts.  All  debts  due  to  any  associations,  on  which  in- 
terest is  past  due  and  unpaid  for  a  period  of  six  months,  unless 
the  same  are  well  secured,  and  in  process  of  collection,  shall  be 
considered  bad  debts  within  the  meaning  of  this  section.  But 
nothing  in  this  section  shall  prevent  the  reduction  of  the 
capital  stock  of  the  association  under  section  fifty-one  hundred 
and  forty-three. 

115.  Assessment  for  Impairment  of  Capital.  (Sec. 
5205.)     Every  association  which  shall  have  failed  to  pay  up 


616  Appendix. 

its  capital  stock,  as  required  hj  law,  and  every  association  whose 
capital  stock  shall  have  become  "impaired  by  losses  or  other- 
wise, shall,  within  three  months  after  receiving  notice  thereof 
from  the  Comptroller  of  the  Currency,  pay  the  deficiency  in 
the  capital  stock,  by  assessment  upon  the  shareholders  pro 
rata  for  the  amount  of  capital  stock  held  by  each ;  and  the 
Treasurer  of  the  United  States  shall  withhold  the  interest 
upon  all  bonds  held  by  him  in  trust  for  any  such  association, 
upon  notification  from  the  Comptroller  of  the  Currency,  until 
otherwise  notified  by  him.  If  any  such  association  shall  fail 
to  pay  up  its  capital  stock,  and  shall  refuse  to  go  into  liquida- 
tion, as  provided  by  law,  for  three  months  after  receiving  no- 
tice from  the  Comptroller,  a  receiver  may  be  appointed  to 
close  up  the  business  of  the  association,  according  to  the 
provisions  of  section  fifty-two  hundred  and  thirty-four. 

116.  Provision  foe  Enforcement  of  Assessment. — 
Sec.  4  of  the  act  of  June  30,  1876,  provides  that  if  any  share- 
holder or  shareholders  of  a  bank  shall  neglect  or  refuse,  after 
three  months'  notice,  to  pay  the  assessment,  as  provided  in  this 
iL-cction,  it  shall  be  the  duty  of  the  board  of  directors  to  cause  a 
sufficient  amount  of  the  capital  stock  of  such  shareholder  or 
shareholders  to  be  sold  at  public  auction  (after  thirty  days' 
notice  shall  be  given  by  posting  such  notice  of  sale  in  the  office  of 
the  bank  and  by  publishing  such  notice  in  a  newspaper  of  the 
city  or  toA\Ti  in  which  the  bank  is  located,  or  in  a  newspaper  pub- 
lished nearest  thereto)  to  make  good  the  deficiency;  and  the 
balance,  if  any,  shall  be  returned  to  such  delinquent  shareholder 
or  shareholders. 

117.  PROniBITION      AGAINST      UnCURRENT      J^OTES.  {S'EC. 

5206.)  Xo  association  shall  at  any  time  pay  out  on  loans  or 
discounts,  or  in  purchasing  drafts  or  bills  of  exchange,  or  in 
payment  of  deposits,  or  in  any  other  mode  pay  or  put  in  cir- 
culation the  notes  of  any  bank  or  banking  association  which  are 
not,  at  any  such  time,  receivable,  at  par,  on  deposit,  and  in 
payment  of  debts  by  the  association  so  paying  out  or  circulat- 
ing such  notes ;  nor  shall  any  association  knowingly  pay  out  or 
put  in  circulation  any  notes  issued  by  any  bank  or  banking  as- 
sociation which  at  the  time  of  such  paying  out  or  ])utting  in 
circulation  is  not  redeeming  its  circulating  notes  in  lawful 
money  of  the  United  States. 


Banking.  617 

118.  List  of  Shaeeholdees.  (Sec.  5210.)  The  president 
and  cashier  of  every  national  banking  association  shall  cause  to 
be  kept  at  all  times  a  full  and  correct  list  of  the  names  and 
residences  of  all  the  shareholders  in  the  association,  and  the 
number  of  shares  held  by  each,  in  the  office  where  its  business 
is  transacted.  Such  list  shall  be  subject  to  the  inspection  of 
all  the  shareholders  and  creditors  of  the  association,  and  the 
officers  authorized  to  assess  taxes  under  State  authority,  dur- 
ing business  hours  of  each  day  in  -which  business  may  be 
legally  transacted.  A  copy  of  such  list,  on  the  first  Monday 
of  July  of  each  year,  verified  by  the  oath  of  such  president  or 
cashier,  shall  be  transmitted  to  the  Comptroller  of  the  Cur- 
rency. 

119.  Eeports  of  Condition.  (Sec.  5211.)  Every  associ- 
ation shall  make  to  the  Comptroller  of  the  Currency  not  less 
than  five  reports  during  each  year,  according  to  the  form  which 
may  be  prescribed  by  him,  verified  by  the  oath  or  affirmation 
of  the  j^resident  or  cashier  of  such  association,  and  attested 
by  the  signature  of  at  least  three  of  the  directors.  Each  such 
report  shall  exhibit,  in  detail  and  under  appropriate  heads,  the 
resources  and  liabilities  of  the  associations  at  the  close  of 
business  on  any  past  day  by  him  specified,  and  shall  be  trans- 
mitted to  the  Comptroller  within  five  days  after  the  receipt 
of  a  request  or  requisition  therefor  from  him,  and  in  the  same 
form  in  which  it  is  made  to  the  Comptroller  shall  be  published 
in  a  newspaper  published  in  the  place  where  such  association  is 
established,  or  if  there  is  no  newspaper  in  the  place,  then  in 
one  published  nearest  thereto  in  the  same  county,  at  the  ex- 
pense of  the  association  ;  and  such  proof  of  publication  shall  be 
furnished  as  may  be  required  by  the  Comptroller.  The  Comp- 
troller shall  also  have  power  to  call  for  special  reports  from 
any  particular  association  whenever  in  his  judgment  the  same 
are  necessary  in  order  to  a  full  and  complete  knowledge  of  its 
condition. 

120.  Veeification  of  such  Repoets. — The  act  of  Febru- 
ary 26,  1881,  provides  that  the  oath  or  affirmation  required  by 
section  fifty-two  hundred  and  eleven  of  the  Kevised  Statutes, 
verifying  the  returns  made  by  national  banks  to  the  Comp- 
troller of  the  Currency,  when  taken  before  a  notary  public 
properly  authorized  and  commissioned  by  the  State  in  which 
such  notary  resides  and  the  bank  is  located,  or  any  other  officer 


618  Appendix. 

having  an  official  seal,  authorized  in  such  State  to  administer 
oaths,  shall  be  a  sufficient  verification  as  contemplated  by  said 
section  fifty-two  hundred  and  eleven:  Provided,  That  the  officer 
administering  the  oath  is  not  an  officer  of  the  bank. 

121.  Reports  of  Dividends  and  Earnixc;s,  (Sec.  5212.) 
In  addition  to  the  reports  required  by  the  preceding  section, 
each  association  shall  report  to  the  Comptroller  of  the  Cur- 
rency, within  ten  days  after  declaring  any  dividend,  the  amount 
of  such  dividend  and  the  amount  of  net  earnings  in  excess  of 
such  dividend.  Such  reports  shall  be  attested  by  the  oath  of 
the  president  or  cashier  of  the  association. 

122.  Penalty  for  Failure  to  Report.  (Sec.  5213.) 
Every  association  which  fails  to  make  and  transmit  any  report 
required  under  either  of  the  two  preceding  sections  shall  be 
subject  to  a  penalty  of  one  hundred  dollars  for  each  day  after 
the  periods,  respectively,  therein  mentioned,  that  it  delays  to 
make  and  transmit  its  report.  Whenever  any  association  de- 
lays or  refuses  to  pay  the  penalty  herein  imposed,  after  it  has 
been  assessed  by  the  Comptroller  of  the  Currency,  the  amount 
thereof  may  be  retained  by  the  Treasurer  of  the  United  States, 
upon  the  order  of  the  Comptroller  of  the  Currency,  out  of  the 
interest,  as  it  may  become  due  to  the  association,  on  the  bonds 
deposited  with  him  to  secure  circulation.  All  sums  of  money 
collected  for  penalties  under  this  section  shall  be  paid  into  the 
Treasury  of  the  United  States. 

123.  Reports  of  other  Banks. — Sec.  6  of  the  act  of  June 
30,  1876,  as  amended  by  acts  of  March  3,  1901,  and  June  30, 
1902,  provides  that  all  banks  or  savings  companies  or  institu- 
tions organized  under  authority  of  any  act  of  Congress  to  do 
business  in  the  District  of  Columbia  shall  be,  and  are  hereby, 
required  to  make  to  the  Comptroller  of  the  Currency,  and 
publish,  all  the  reports  which  national  banking  associations  are 
required  to  make  and  publish,  under  the  provisions  of  sections 
fifty-two  hundred  and  eleven,  fifty-two  hundred  and  twelve, 
and  fifty-two  hundred' and  thirteen  of  the  Revised  Statutes, 
and  shall  be  subject  to  the  same  penalties  for  failure  to  make 
or  publish  such  reports  as  are  therein  provided,  which  penalties 
may  be  collected  by  suit  before  the  supreme  court  of  the  Dis- 
trict of  Columbia. 

124.  State  Taxation  of  ISTational  Ranks.  (Sec.  5219.) 
Nothing  herein  shall  prevent  all  the  shares  in  any  association 


Banking.  619 

from  being  included  in  the  valuation  of  the  personal  property 
of  the  owner  or  holder  of  such  shares,  in  assessing  taxes  im- 
posed bv  authority  of  the  State  within  which  the  association  is 
located ;  but  the  legislature  of  each  State  may  determine  and 
direct  the  manner  and  place  of  taxing  all  the  shares  of  national 
banking  associations  located  within  the  State,  subject  only  to  tliD 
two  restrictions,  that  the  taxation  shall  not  be  at  a  greater  rate 
than  is  assessed  upon  other  moneyed  capital  in  the  hands  of 
individual  citizens  of  such  State,  and  that  the  shares  of  any 
national  banking  association  owned  by  nonresidents  of  any 
State  shall  be  taxed  in  the  city  or  town  where  the  bank  is 
located,  and  not  elsewhere.  Xothing  herein  shall  be  construed 
to  exempt  the  real  property  of  associations  from  either  State, 
county,  or  municipal  taxes,  to  the  same  extent,  according  to 
its  value,  as  other  real  property  is  taxed. 

125.  Xational-Bank  Examinees.  (Sec.  5240.)  The 
Comptroller  of  the  Currency,  with  the  approval  of  the  Secre- 
tary of  the  Treasury,  shall,  as  often  as  shall  be  deemed  neces- 
sary or  proper,  appoint  a  suitable  person  or  persons  to  make 
an  examination  of  the  affairs  of  every  banking  association,  who 
shall  have  power  to  make  a  thorough  examination  into  all  the 
affairs  of  the  association,  and  in  doing  so  to  examine  any  of 
the  officers  and  agents  thereof  on  oath;  and  shall  make  a  full 
and  detailed  report  of  the  condition  of  the  association  to  the 
Comptroller. 

126.  Qualification  for  Examinee.  (Sec.  5240.)  But  no 
person  shall  be  appointed  to  examine  the  affairs  of  any  banking 
association  of  which  he  is  a  director  or  other  officer. 

127.  Compensation  of  Examinees.  (Sec.  5240.)  All 
persons  appointed  to  be  examiners  of  national  banks  not  located 
in  the  redemption  cities  specified  in  section  five  thousand  one 
hundred  and  ninety-two  of  the  Revised  Statutes  of  the  United 
States,  or  in  any  one  of  the  States  of  Oregon,  California,  and 
Kevada,  or  in  the  Territories,  shall  receive  compensation  for 
such  examination  as  follows:  For  examining  national  banks 
having  a  capital  less  than  one  hundred  thousand  dollars,  twenty 
dollars ;  those  having  a  capital  of  one  hundred  thousand  dollars 
and  less  than  three  hundred  thousand  dollars,  twenty-five  dol- 
lars ;  those  having  a  capital  of  three  hundred  thousand  dollars 
and  less  than  four  hundred  thousand  dollars,  thirty-five  dollars ; 


C20  Appendix. 

those  having  a  capital  of  four  hundred  thousand  dollars  and 
less  than  five  hundred  thousand  dollars,  forty  dollars;  those 
having  a  capital  of  five  hundred  thousand  dollars  and  less  than 
six  hundred  thousand  dollars,  fifty  dollars ;  those  having  a 
capital  of  six  hundred  thousand  dollars  and  over,  seventy-five 
dollars ;  which  amounts  shall  be  assessed  by  the  Comptroller 
of  the  Currency  upon,  and  paid  by,  the  respective  association 
so  examined,  and  shall  be  in  lieu  of  the  compensation  and 
mileage  heretofore  allowed  for  making  said  examinations ;  and 
persons  appointed  to  make  examinations  of  national  banks  in 
the  cities  named  in  section  five  thousand  one  hundred  and 
ninety-two  of  the  Revised  Statutes  of  the  United  States,  or  in 
any  one  of  the  States  of  Oregon,  California,  and  Xevada,  or  in 
the  Territories,  shall  receive  such  compensation  as  may  be  fixed 
by  the  Secret-ary  of  the  Treasury  upon  the  recommendation  of 
the  Comptroller  of  the  Currency ;  and  the  same  shall  be  assessed 
and  paid  in  the  manner  hereinbefore  provided. 

128.  Examinations  in  District  of  Columbia.  (Sec. 
332.)  The  Comptroller  of  the  CuiTency,  in  addition  to  the 
powers  conferred  upon  him  by  law  for  the  examination  of 
national  banks,  is  further  authorized,  whenever  he  may  deem 
it  useful,  to  cause  examination  to  be  made  into  the  condition  of 
any  bank  in  the  District  of  Columbia  organized  under  act  of 
Congress.  The  Comptroller,  at  his  discretion,  may  report  to 
Congress  the  results  of  such  examination.  The  expense  neces- 
sarily incurred  in  any  such  examination  shall  be  paid  out  of 
any  appropriation  made  by  Congress  for  special  bank  exami- 
nations. 

129.  Limitation  of  Yisitoeial  Powers.  (Sec.  5241.)  Xo 
association  shall  be  subject  to  any  visitorial  powers  other  than 
such  as  are  authorized  by  this  Title,  or  are  vested  in  the  courts 
of  justice. 

130.  Use *OF ''Xational'' IN  Titles.  (Sec.  5243.)  All 
banks  not  organized  and  transacting  business  under  the  na- 
tional currency  laws,  or  under  this  Title,  and  all  persons  or 
corporations  doing  the  business  of  bankers,  brokers,  or  sav- 
ings institutions,  except  savings  banks  authorized  by  Congress 
to  use  the  word  "  national  "  as  a  part  of  their  corporate  name, 
are  proliibited  from  using  the  word  "  national ''  as  a  portion 
of  the  name  or  title  of  such  bank,  corporation,  firm,  or  partner- 


Banking.  621 

ship ;  and  any  violation  of  tins  prohibition  committed  after 
the  third  day  of  September,  eighteen  hundred  and  seventy- 
three,  shall  subject  the  party  charc;eable  therewith  to  a  penalty 
of  fifty  dollars  for  each  day  during  which  it  is  permitted  or 
repeated.  

EXTENSION   OF   CORPOEATE   EXISTENCE. 

131.  Corporate  existence  may  be  ex-       134.  Status   not   changed   by   extcn- 

tended.  sion. 

132.  Consent    of    two-thirds    neces-       135.  Dissenting     shareholders     may 

sary.  withdraw. 

133.  Special  examination  of  bank. 

131.  CoKPOEATE  Existence  may  be  Extended. — The  act 
of  July  12,  1882,  provides:  (Sec.  1)  That  any  national  banking 
association  organized  under  the  acts  of  February  twenty-fifth, 
eighteen  hundred  and  sixty-three,  June  third,  eighteen  hundred 
and  sixty-four,  and  February  fourteenth,  eighteen  hundred  and 
eighty,  or  under  sections  fifty-one  hundred  and  thirty-three, 
fifty-one  hundred  and  thirty-four,  fifty-one  hundred  and  thirty- 
five,  fifty-one  hundred  and  thirty-six,  and  fifty-one  hundred  and 
fifty-four  of  the  Eevised  Statutes  of  the  United  States,  may, 
at  any  time  within  the  two  years  next  previous  to  the  date  of 
the  expiration  of  its  corporate  existence  under  present  law,  and 
with  the  approval  of  the  Comptroller  of  the  Currency,  to  be 
granted  as  hereinafter  provided,  extend  its  period  of  succession 
by  amending  its  articles  of  association  for  a  term  of  not  more 
than  twenty  years  from  the  expiration  of  the  period  of  succes- 
sion named  in  said  articles  of  association,  and  shall  have  suc- 
cession for  such  extended  period,  unless  sooner  dissolved  by  the 
act  of  shareholders  owning  two-thirds  of  its  stock,  or  unless  its 
franchise  becomes  forfeited  by  some  violation  of  law^,  or  unless 
hereafter  modified  or  repealed. 

132.  Consent  OF  Two-thieds  I^ECESSAEY.  (Sec.  2.)  That 
such  amendment  of  said  articles  of  association  shall  be  au- 
thorized by  the  consent  in  writing  of  shareholders  owning  not 
less  than  two-thirds  of  the  capital  stock  of  the  association ;  and 
the  board  of  directors  shall  cause  such  consent  to  be  certified 
under  the  seal  of  the  association,  by  its  president  or  cashier, 
to  the  Comptroller  of  the  Currency,  accompanied  by  an  ap- 
plication made  by  the  president  or  cashier  for  the  approval  of 
the  amended  articles  of  association  by  the  Comptroller;  and 
such  amended  articles  of  association  shall  not  be  valid  until  the 


G22  Appendix. 

Comptroller  shall  give  to  such  association  a  certificate  under 
his  hand  and  seal  that  the  association  has  complied  with  all  the 
provisions  required  to  be  complied  with  and  is  authorized  to 
liave  succession  for  the  extended  period  named  in  the  amended 
articles  of  association. 

133.  Special  Examination  of  Bank.  (Sec.  3.)  That 
upon  the  receipt  of  the  application  and  certificate  of  the  as- 
sociation provided  for  in  the  preceding  section,  the  Comptroller 
of  the  Currency  shall  cause  a  special  examination  to  be  made^ 
at  the  expense  of  the  association,  to  determine  its  condition ; 
and  if  after  such  examination  or  otherwise  it  appears  to  him 
that  said  association  is  in  a  satisfactory  condition,  he  shall 
grant  his  certificate  of  approval  provided  for  in  the  preceding 
section,  or  if  it  appears  that  the  condition  of  said  association  is 
not  satisfactory,  he  shall  withhold  such  certificate  of  approval. 

134.  Status  not  Changed  by  Extension.  (Sec.  4.)  That 
any  association  so  extending  the  period  of  its  succession  shall 
continue  to  enjoy  all  the  rights  and  privileges  and  immunities 
granted  and  shall  continue  to  be  subject  to  all  the  duties,  lia- 
bilities, and  restrictions  imposed  by  the  Revised  Statutes  of  the 
United  States  and  other  acts  having  reference  to  national  bank- 
ing associations,  and  it  shall  continue  to  be  in  all  respects  the 
identical  association  it  was  before  the  extension  of  its  period 
of  succession. 

135.  Dissenting  Shareholders  May  Withdraw.  (Sec. 
5.)  That  when  any  national  banking  association  has  amended 
its  articles  of  association  as  provided  in  this  act,  and  the  Comp- 
troller has  granted  his  certificate  of  approval,  any  shareholder 
not  assenting  to  such  amendment  may  give  notice  in  writing  to 
the  directors,  within  thirty  days  from  the  date  of  the  certificate 
of  approval,  of  his  desire  to  withdraw  from  said  association, 
in  which  case  he  shall  be  entitled  to  receive  from  said  banking 
association  the  value  of  the  shares  so  held  by  him,  to  be  as- 
certained by  an  appraisal  made  by  a  committe  of  three  persons, 
one  to  be  selected  by  such  shareholder,  one  by  the  directors, 
and  the  third  by  the  first  two ;  and  in  case  the  value  so  fixed 
shall  not  be  satisfactory  to  any  such  shareholder,  he  may  ap- 
peal to  the  Comptroller  of  tlie  Currency,  who  shall  cause  a  re- 
appraisal to  be  made,  which  «hall  be  final  and  binding;  and  if 
said  appraisal  shall  exceed  the  \^lue  fixed  by  said  committee, 
the  bank  shall  pay  the  expenses  of,said  reappraisal,  and  other- 


Banking.  623 

wise  the  ajopellant  shall  pay  said  expenses ;  and  the  value  so 
ascertained  and  determined  shall  be  deemed  to  be  a  debt  due, 
and  be  forthwith  paid,  to  said  shareholder,  from  said  bank ;  and 
the  shares  so  surrendered  and  appraised  shall,  after  due  notice, 
be  sold  at  public  sale,  within  thirty  days  after  the  final  ap- 
praisal provided  in  this  section:  Provided,  That  in  the  organi- 
zation of  any  banking  association  intended  to  replace  any  exist- 
ing banking  association,  and  retaining  the  name  thereof,  the 
holders  of  stock  in  the  expiring  association  shall  be  entitled 
to  preference  in  the  allotment  of  the  shares  of  the  new  associa- 
tion in  proportion  to  the  number  of  shares  held  by  them  re- 
spectively in  the  expiring  association. 

136.  Reextension  of  Cokpoeate  Existence. — The  act  of 
Congress,  approved  April  12,  1902,  provides  that  the  Comp- 
troller of  the  Currency  is  hereby  authorized-  in"  the  manner 
provided  by,  and  under  the  conditions  and  limitations  of  the 
act  of  July  12,  1882,  to  extend  for  a  further  period  of  twenty 
years  the  charter  of  any  national  banking  association  extended 
under  said  act  which  shall  desire  to  continue  its  existence  after 
the  expiration  of  its  charter. 


LIQUIDATION    AND    RECEIVERSHIP, 

137.  Two-thirds    vote    required    for  lol.  Bonds  sold  at  private  sale. 

liquidation.  1.52.  Appointment  and  duties  of  re- 

138.  Notice  of  voluntary  liquidaton.  ceiver. 

139.  Deposit  of  lawful  money.  153.  When     receiver     may     be     ap- 

140.  Xo  deposit  required  for  consoli-  pointed. 

dation.  154.  Xotice  to  creditors  of  insolvent 

141.  Bonds  of  liquidating  banks.  banks. 

142.  Banks  whose  existence  has  ex-  155.  Distribution  of  assets  of  insol- 

pired.  vent  banks. 

143.  Protest  of  bank  circulation.  15G.  Expenses  of  receivership  —  how 

144.  Bonds  forfeited  if  circulation  is  paid. 

dishonored.  157.   Forfeiture  of  charter. 

145.  Bank  may   enjoin   further  pro-  15S.   Individual  liability  of  directors. 

ceedings.  159.  Receiver    may    purchase    prop- 

14G.  Where     proceedings     must     bo  erty  to  protect  his  trust. 

brought.  IGO.  Taxes     on     insolvent     national 

147.  Suspension    of    business    after  banks  remitted. 

default.  IGl.  Appointment    and   qualification 

148.  Xotice    to    present    circulation  of  shareholders'  agent. 

for  redemption.  1G2.  Duties   of   shareholders'   agent. 

149.  Bonds  sold  at  public  auction.  1G3.   Illegal   preference  of  creditors. 

150.  First  lien  for  redeeming  circu-  1G4.  Creditor's    bill    against    share- 

lation.  holders. 

137.   Two-TiiiRDs  Vote  Required  for  Liquidation.    (Sec. 

5220.)  Any  association  may  go  into  liquidation  and  be  closed 

by  the  vote  of  its  shareholders  owning  two-thirds  of  its  stock. 


624  Appendix. 

138.  ^Notice  of  Voluntary  Liquidation.  (Sec.  5221.) 
Whenever  a  vote  is  taken  to  go  into  liquidation  it  shall  be  the 
duty  of  the  board  of  directors  to  cause  notice  of  this  fact  to  be 
certified,  under  the  seal  of  the  association,  by  its  president  or 
cashier,  to  the  Comptroller  of  the  Currency,  and  the  publica- 
tion thereof  to  be  made  for  a  period  of  two  months  in  a  news- 
paper published  in  the  city  of  New  York,  and  also  in  a  news- 
paper published  in  the  city  or  town  in  which  the  association  is 
located,  or  if  no  newspaper  is  there  published,  then  in  the 
newspaper  published  nearest  thereto,  that  tlie  association  is 
closing  up  its  affairs,  and  notifying  the  holders  of  its  notes  and 
other  creditors  to  present  the  notes  and  other  claims  against 
the  association  for  payment. 

139.  Deposit  of  Lawful  Money.  (Sec.  5222.)  Within 
six  months  from  the  date  of  the  vote  to  go  into  liquidation  the 
association  shall  deposit  with  the  Treasurer  of  the  United 
States  lawful  money  of  the  United  States  suificient  to  redeem 
all  its  outstanding  circulation.  The  Treasurer  shall  execute 
duplicate  receipts  for  money  thus  deposited,  and  deliver  one 
to  the  association  and  the  other  to  the  Comptroller  of  the  Cur- 
rency, stating  the  amount  received  by  him,  and  the  purpose  for 
which  it  has  been  received;  and  the  money  shall  be  paid  into 
the  Treasury  of  the  United  States,  and  placed  to  the  credit  of 
such  association  upon  redemption  account. 

140.  Xo  Deposit  Required  for  Consolidation.  (Sec. 
5223.)  An  association  which  is  in  good  faith  winding  up  its 
business  for  the  purpose  of  consolidating  with  another  associa- 
tion shall  not  be  required  to  deposit  lawful  money  for  its 
outstanding  circulation;  but  its  assets  and  liabilities  shall  be 
reported  by  the  association  with  which  it  is  in  process  of  con- 
solidation. 

141.  Bonds  of  Liquidating  Banks.  (Sec.  5224.)  When- 
ever a  sufficient  deposit  of  lawful  money  to  redeem  the  out- 
standing circulation  of  an  association  proposing  to  close  its 
business  has  been  made,  the  bonds  deposited  by  the  associa- 
tion to  secure  payment  of  its  notes  shall  be  reassigned  to  it, 
in  the  manner  prescribed  by  section  fiity-one  hundred  and 
sixty-two.  And  thereafter  the  association  and  its  shareholders 
shall  stand  discharged  from  all  liabilities  upon  the  circulating 
notes,  and  those  notes  shall  be  redeemed  at  the  Treasury  of  the 


Banking.  625 

United  States.  And  if  any  such  bank  shall  fail  to  make  the  de- 
posit and  take  up  its  bonds  for  thirty  days  after  the  expiration 
of  the  time  specified,  the  Comptroller  of  the  Currency  shall 
have  power  to  sell  the  bonds  pledged  for  the  circulation  of 
said  bank  at  public  auction  in  Xew  York  City,  and,  after  pro- 
viding for  the  redemption  and  cancellation  of  said  circulation, 
and  the  necessary  expenses  of  the  sale,  to  pay  over  any  balance 
remaining  to  the  bank  or  its  legal  representatives. 

142.  Banks  whose  Existence  has  Expired. — Sec.  7  of  the 
act  of  July  12,  1882,  provides  that  national  banking  associa- 
tions whose  corporate  existence  has  expired  or  shall  hereafter 
expire,  and  which  do  not  avail  themselves  of  the  provisions  of 
this  act,  shall  be  required  to  comply  with  the  provisions  of  sec- 
tions fifty-two  hundred  and  twenty-one  and  fifty-two  hundred 
and  twenty-two  of  the  Revised  Statutes  in  the  same  manner 
as  if  the  shareholders  had  voted  to  go  into  liquidation,  as  pro- 
vided in  section  fifty-two  hundred  and  twenty  of  the  Revised 
Statutes;  and  the  provisions  of  sections  fifty-two  hundred  and 
twenty-four  and  fifty-two  hundred  and  twenty-five  of  the  Re- 
vised Statutes  shall  also  be  applicable  to  such  associations,  ex- 
cept as  modified  by  this  act;  and  the  franchise  of  such  associa- 
tions is  hereby  extended  for  the  sole  purpose  of  liquidating 
their  affairs  until  such  affairs  are  finally  closed. 

143.  Protest  of  Bank  Circulation.  (Sec.  5226.) 
Whenever  any  national  banking  association  fails  to  redeem  in 
the  lawful  money  of  the  United  States  any  of  its  circulating 
notes,  upon  demand  of  payment  duly  made  during  the  usual 
hours  of  business,  at  the  office  of  such  association,  the  holder 
may  cause  the  same  to  be  protested,  in  one  package  by  a 
notary  public,  unless  the  president  or  cashier  of  the  associa- 
tion whose  notes  are  presented  for  payment  offers  to  waive  de- 
mand and  notice  of  the  protest,  and,  in  pursuance  of  such 
offer,  makes,  signs,  and  delivers  to  the  party  making  such  de- 
mand an  admission  in  writing,  stating  the  time  of  the  demand, 
the  amount  demanded,  and  the  fact  of  the  nonpayment  thereof. 
The  notary  public,  on  making  such  protest,  or  upon  receiving 
such  admission,  shall  forthwith  forward  such  admission  or 
notice  of  protest  to  the  Comptroller  of  the  Currency,  retaining 
a  copy  thereof.  If,  however,  satisfactory  proof  is  produced 
to  the  notary  public  that  the  payment  of  the  notes  demanded 

40 


(326  Appexdix. 

is  restrained  bv  order  of  any  conrt  of  competent  jurisdiction,  he 
shall  not  protest  the  same.  AVhen  the  holder  of  any  notes 
causes  more  than  one  note  or  package  to  be  protested  on  the 
same  day,  he  shall  not  receive  pay  for  more  than  one  protest. 

144.  BoxDs  Forfeited  if  Circulatiox  is  Dishoxobed. 
(Sec.  5227.)  On  receiving  notice  that  any  national  banking 
association  has  failed  to. redeem  any  of  its  circulating  notes, 
as  specified  in  the  preceding  section,  the  Comptroller  of  the 
Currency,  with  the  concurrence  of  the  Secretary  of  the  Treas- 
ury, may  appoint  a  special  agent,  of  "whose  appointment  im- 
mediate notice  shall  be  given  to  such  association.,  who  shall 
immediately  proceed  to  ascertain  whether  it  has  refused  to  pay 
its  circulating  notes  in  the  lawful  money  of  the  United  States, 
when  demanded,,  and  shall  report  to  the  Comptroller  the  fact 
so  ascertained.  If  from  such  protest,  and  the  report  so  made, 
the  Comptroller  is  satisfied  that  such  association  has  refused 
to  pay  its  circulating  notes  and  is  in  default,  he  shall,  within 
thirty  days  after  he  has  received  notice  of  such  failure,  declare 
the  bonds  deposited  by  such  association  forfeited  to  the  United 
States,  and  they  shall  thereupon  be  so  forfeited. 

145.  Bank  May  Exjoix  Fuether  Proceedhstgs.  (Sec. 
5237.)  Whenever  an  association  against  which  proceedings 
have  been  instituted,  on  account  of  any  alleged  refusal  to  re- 
deem its  circulating  notes  as  aforesaid^  denies  having  failed 
to  do  so,  it  may,  at  any  time  within  ten  days  after  it  has  been 
notified  of  the  appointment  of  an  agent,  as  provided  in  sec- 
tion fifty-two  hundred  and  twenty-seven,  apply  to  the  nearest 
circuit,  or  district,  or  Territorial  court  of  the  United  States 
to  enjoin  further  proceedings  in  the  premises;  and  such  court, 
after  citing  the  Comptroller  of  the  Currency  to  show  cause 
why  further  proceedings  should  not  be  enjoined,  and  after  the 
decision  of  the  court  or  finding  of  the  jury  that  such  associa- 
tion has  not  refused  to  redeem  its  circulating  notes,  when 
legally  presented,  in  the  lawful  money  of  the  United  States, 
shall  make  an  order  enjoining  the  Comptroller,  and  any  re- 
ceiver acting  under  his  direction,  from  all  further  proceedings 
on  account  of  such  alleged  refusal. 

146.  Where  Proceedixgs  Must  be  Brought.  (Sec.  736.) 
All  procedings  by  any  national  banking  association  to  enjoin 
the  Comptroller  of  the  Currency,  under  the  provisions  of  any 


Banking.  627 

law  relating  to  national  banking  associations,  shall  be  had  in 
the  district  where  such  association  is  located. 

l-iT.  Suspension  of  Business  After  Default.  (Sec. 
5228.)  After  a  default  on  the  part  of  an  association  to  pay 
any  of  its  circulating  notes  has  been  ascertained  by  the  Comp- 
troller, and  notice  thereof  has  been  given  by  him  to  the  as- 
sociation, it  shall  not  be  lawful  for  the  association  suffering 
the  same  to  pay  out  any  of  its  notes,  discount  any  notes  or 
bills,  or  otherwise  prosecute  the  business  of  banking,  except  to 
receive  and  safely  keep  money  belonging  to  it,  and  to  deliver 
special  deposits. 

148.  jSTotice  to  Present  Circulation  for  Redemption. 
(Sec.  5229.)  Immediately  upon  declaring  the  bonds  of  an 
association  forfeited  for  nonpayment  of  its  notes,  the  Comp- 
troller shall  give  notice,  in  such  manner  as  the  Secretary  of  the 
Treasury  shall,  by  general  rules  or  otherwise  direct,  to  the 
holders  of  the  circulating  notes  of  such  association,  to  present 
them  for  payment  at  the  Treasury  of  the  United  States;  and 
the  same  shall  be  paid  as  presented  in  lawful  money  of  the 
United  States;  whereupon  the  Comptroller  may,  in  his  dis- 
cretion, cancel  an  amount  of  bonds  pledged  by  such  associa- 
tion equal  at  current  market  rates,  not  exceeding  par,  to  the 
notes  paid. 

149.  Bonds  Sold  at  Public  Auction.  (Sec.  5230.) 
WTienever  the  Comptroller  has  become  satisfied,  by  the  pro- 
test or  the  w^aiver  and  admission  specified  in  section  fifty-two 
hundred  and  twenty-six,  or  by  the  report  provided  for  in  sec- 
tion fifty-two  hundred  and  twenty-seven,  that  any  association 
has  refused  to  pay  its  circulating  notes,  he  may,  instead  of 
canceling  its  bonds,  cause  so  much  of  them  as  may  be  neces- 
sary to  redeem  its  outstanding  notes  to  be  sold  at  public  auc- 
tion in  the  city  of  New  York,  after  giving  thirty  days'  notice 
of  such  sale  to  the  association. 

150.  First  Lien  for  Redeeming  Circulation.  (Sec. 
5230.)  For  any  deficiency  in  the  proceeds  of  all  the  bonds  of  an 
association,  when  thus  sold,  to  reimburse  to  the  United  States 
the  amount  expended  in  paying  the  circulating  notes  of  the 
association,  the  United  States  shall  have  a  paramount  lien 
upon  all  its  assets;  and  such  deficiency  shall  be  made  good  out 
of  such  assets  in  preference  to  any  and  all  other  claims  what- 


628  Appendix. 

soever,  except  the  necessarr  costs  and  expenses  of  administer- 
ing the  same. 

151.  BoK^Ds  Sold  at  Private  Sale.  (Sec.  5231.)  The 
Comptroller  may,  if  he  deems  it  for  the  interest  of  the  United 
States,  sell  at  private  sale  any  of  the  bonds  of  an  association 
shown  to  have  made  default  in  paying  its  notes,  and  receive 
therefor  either  money  or  the  circulating  notes  of  the  associa- 
tion. But  no  such  bonds  shall  be  sold  by  private  sale  for  less 
than  par,  nor  for  less  than  the  market  value  thereof  at  the 
time  of  sale;  and  no  sales  of  any  such  bonds,  either  public  or 
private,  shall  be  complete  until  the  transfer  of  the  bonds  shall 
have  been  made  with  the  formalities  prescribed  by  sections 
fifty-one  hundred  and  sixty-two,  fifty-one  hundred  and  sixty- 
three,  and  fifty-one  hundred  and  sixty-four. 

152.  Appoixtmeistt  and  Duties  of  Receiver.  (Sec. 
5234.)  On  becoming  satisfied,  as  specified  in  sections  fifty- 
two  hundred  and  twenty-six  and  fifty-two  hundred  and  twenty- 
seven,  that  any  association  has  refused  to  pay  its  circulating 
notes  as  therein  mentioned,  and  is  in  default,  the  Comptroller 
of  the  Currency  may  forthwith  appoint  a  receiver,  and  require 
of  him  such  bond  and  security  as  he  deems  proper.  Such  re- 
ceiver, under  the  direction  of  the  Comptroller,  shall  take  pos- 
session of  the  books,  records,  and  assets  of  every  description  of 
such  association,  collect  all  debts,  dues  and  claims  belonging  to 
it,  and,  upon  the  order  of  a  court  of  record  of  competent  juris- 
diction, may  sell  or  compound  all  bad  or  doubtful  debts,  and, 
on  a  like  order,  may  sell  all  the  real  and  personal  property  of 
such  association,  on  such  terms  as  the  court  shall  direct;  and 
may,  if  necessary  to  pay  the  debts  of  such  association,  en- 
force the  individual  liability  of  the  stockholders.  Such  re- 
ceiver shall  pay  over  all  money  so  made  to  the  Treasurer  of 
the  United  States,  subject  to  the  order  of  the  Comptroller,  and 
also  make  report  to  the  Comptroller  of  all  his  acts  and  pro- 
ceedings. 

153.  When  Receiver  May  be  Appointed. — Sec.  1  of  the 
act  of  June  30,  1876,  provides  that  whenever  any  national 
banking  association  shall  be  dissolved,  and  its  rights,  privileges, 
and  franchises  declared  forfeited,  as  prescribed  in  section  fifty- 
two  hundred  and  thirty-nine  of  the  Revised  Statutes  of  the 
United  States,  or  whenever  any  creditor  of  any  national  bank- 


BaahvIXG.  629 

ing  association  shall  have  obtained  a  judgment  against  it  in 
anv  court  of  record,  and  made  application,  accompanied  by  a 
certificate  from  the  clerk  of  the  court  stating  that  such  judg- 
ment has  been  rendered  and  has  remained  unpaid  for  the  space 
of  thirty  davs,  or  whenever  the  Comptroller  shall  become  satis- 
fied of  the  insolvency  of  the  national  banking  association,  he 
may,  after  due  examination  of  its  affairs,  in  either  case,  ap- 
point a  receiver,  who  shall  proceed  to  close  up  such  associa- 
tion, and  enforce  the  personal  liability  of  the  shareholders, 
as  provided  in  section  fifty-two  hundered  and  thirty-four  of 
said  statutes. 

A  receiver  may  also  be  appointed,  under  the  provisions  of 
section  fifty-two  hundred  and  thirty-four  of  the  Revised  Stat- 
utes of  the  United  States,  for  the  following  violations  of  law: 

AVhere  the  capital  stock  of  a  national  bank  has  not  been 
fully  paid  in  and  it  is  thus  reduced  below  the  legal  minimum 
and  remains  so  for  thirty  days.     (Sec.  5141,  R.  S.) 

For  failure  to  make  good  the  lawful-money  reser^'e  within 
thirty  days  after  notice.     (Sec.  5191,  R.  S.) 

Where  a  bank  purchases  or  acquires  its  own  stock,  to  pre- 
vent loss  upon  a  debt  previously  contracted  in  good  faith,  and 
the  same  is  not  sold  or  disposed  of  within  six  months  from  the 
time  of  its  purchase.     (Sec.  5201,  R.  S.) 

For  failure  to  make  good  any  impairment  in  its  capital  stock 
and  refusing  to  go  into  liquidation  within  three  months  after 
receiving  notice.    (Sec.  5205,  R.  S.) 

For  false  certification  of  checks  by  any  officer,  clerk,  or 
agent.     (Sec.  5208,  R.  S.) 

154.  XoTiCE  TO  Ceeditoes  of  Ix'solvent  Banks.  (Sec. 
5235.)  The  Comptroller  shall,  upon  appointing  a  receiver, 
cause  notice  to  be  given,  by  advertisement  in  such  newspapers 
as  he  may  direct,  for  three  consecutive  months,  calling  on  all 
persons  who  may  have  claims  against  such  association  to  pre- 
sent the  same  and  to  make  legal  proof  thereof. 

155.  Distribution  of  Assets  of  Insolvent  Banks.  (Sec. 
5236.)  From  time  to  time,  after  full  provision  has  been  first 
made  for  refunding  to  the  United  States  any  deficiency  in  re- 
deeming the  notes  of  such  association,  the  Comptroller  shall 
make  a  ratable  dividend  of  the  money  so  paid  over  to  him  by 
such  receiver  on  all  such  claims  as  may  have  been  proved  to 


630  Appendix. 

his  satisfaction  or  adjudicated  in  a  court  of  competent  juris- 
diction, and,  as  the  proceeds  of  the  assets  of  such  association 
are  paid  over  to  him,  shall  make  further  dividends  on  all  claims 
previously  proved  or  adjudicated ;  and  the  remainder  of  the 
proceeds,  if  anv,  shall  be  paid  over  to  the  shareholders  of  such 
association,  or  their  legal  representatives,  in  proportion  to  the 
stock  by  them  respectively  held. 

156.  Expenses  of  Receivership — How  Paid.  (Sec. 
5238.)  xVll  fees  for  protesting  the  notes  issued  by  any  national 
banking  association  shall  be  paid  by  the  person  procuring  the 
protest  to  be  made,  and  such  association  shall  be  liable  there- 
for; but  no  part  of  the  bonds  deposited  by  such  association 
shall  be  applied  to  the  payment  of  such  fees.  All  expenses  of 
any  preliminary  or  other  examinations  into  the  condition  of 
any  association  shall  be  paid  by  such  association.  All  expenses 
of  any  receivership  shall  be  paid  out  of  the  assets  of  such  asso- 
ciation before  distribution  of  the  proceeds  thereof. 

157.  Forfeituke  of  Charter.  (Sec.  5239.)  If  the  di- 
rectors of  any  national  banking  association  shall  knowingly 
violate,  or  knowingly  permit  any  of  the  officers,  agents,  or 
servants  of  the  association  to  violate,  any  of  the  provisions  of 
this  Title,  all  the  rights,  privileges,  and  franchises  of  the  asso- 
ciation shall  be  thereby  forfeited.  Such  violation  shall,  how- 
ever, be  determined  and  adjudged  by  a  proper  circuit,  district, 
or  Territorial  court  of  the  United  States,  in  a  suit  brought  for 
that  purpose  by  the  Comptroller  of  the  Currency,  in  his  own 
name,  before  the  association  shall  be  declared  dissolved. 

158.  Individual  Liability  of  Directors.  (Sec.  5239.) 
And  in  cases  of  such  violation  every  director  who  participated 
in  or  assented  to  the  same  shall  be  held  liable  in  his  personal 
and  individual  capacity  for  all  damages  which  the  association, 
its  shareholders,  or  any  other  person  shall  have  sustained  in 
consequence  of  such  violation. 

159.  Eeceiver  May  Purchase  Property  to  Protect  His 
Trust.— The  act  of  March  29,  1880,  provides:  (Sec.  1.) 
That  whenever  the  receiver  of  any  national  bank  duly  ap- 
pointed by  the  Comptroller  of  the  Currency,  and  who  shall 
have  duly  qualified  and  entered  upon  the  discharge  of  his  trust, 
shall  find  it  in  his  opinion  necessary,  in  order  to  fully  protect 
and  benefit  his  said  trust,  to  the  extent  of  any  and  all  equities 


Banking.  631 

that  such  trust  may  have  in  any  property,  real  or  personal,  by 
reason  of  any  bond,  mortgage,  assignment,  or  other  proper  legal 
claim  attaching  thereto,  and  which  said  property  is  to  be  sold 
under  any  execution,  decree  of  foreclosure,  or  proper  order  of 
any  court  of  jurisdiction,  he  may  certify  the  facts  in  the  case, 
together  with  his  opinion  as  to  the  value  of  the  property  to  be 
sold  and  the  value  of  the  equity  his  said  trust  may  have  in  the 
same,  to  the  Comptroller  of  the  Currency,  together  with  a  re- 
quest for  the  right  and  authority  to  use  and  employ  so  much  of 
the  money  of  said  trust  as  may  be  necessary  to  purchase  such 
property  at  such  sale. 

Sec.  2.  That  such  request,  if  approved  by  the  Comptroller 
of  the  Currency,  shall  be,  together  with  the  certificate  of  facts 
in  the  case  and  his  recommendation  as  to  the  amount  of  money 
which  in  his  judgment  should  be  so  used  and  employed,  sub- 
mitted to  the  Secretary  of  the  Treasury,  and  if  the  same  shall 
likewise  be  approved  by  him  the  request  shall  be  by  the  Comp- 
troller of  the  Currency  allowed,  and  notice  thereof,  with  copies 
of  the  request,  certificate  of  facts,  and  indorsement  of  ap- 
provals, shall  be  filed  with  the  Treasurer  of  the  United  States. 

Sec.  3.  That  whenever  any  such  request  shall  be  allowed  as 
hereinbefore  provided,  the  said  Comptroller  of  the  Currency 
shall  be,  and  is,  empowered  to  draw  upon  and  from  such  funds 
of  any  such  trust  as  may  be  deposited  with  the  Treasurer  of 
the  United  States  for  the  benefit  of  the  bank  in  interest  to  the 
amount  as  may  be  recommended  and  allowed  and  for  the  pur- 
pose for  which  such  allowance  was  made:  Provided,  hoivever^ 
That  all  payments  to  be  made  for  or  on  account  of  the  pur- 
chase'of  any  such  property  and  under  any  such  allowance  shall 
be  made  by  the  Comptroller  of  the  Currency  direct,  with  the 
approval  of  the  Secretary  of  the  Treasury,  for  such  purpose 
only  and  in  such  manner  as  he  may  determine  and  order. 

160.  Taxes  on  Insolvent  j^J^ational  Banks  Remitted. — 
The  act  of  March  1,  1879,  provides  that  whenever  and  after  any 
bank  has  ceased  to  do  business  by  reason  of  insolvency  or  bank- 
ruptcy no  tax  shall  be  assessed  or  collected,  or  paid  into  the 
Treasury  of  the  United  States,  on  account  of  such  bank,  which 
shall  diminish  the  assets  thereof  necessary  for  the  full  payment 
of  all  its  depositors ;  and  such  tax  shall  be  abated  from  sucii 
national  banks  as  are  found  by  the  Comptroller  of  the  Cur- 


G32  Appendix. 

rencj  to  be  insolvent ;  and  the  Commissioner  of  Internal 
Revenue,  wlien  the  facts  shall  so  ajDpear  to  him,  is  authorized  to 
remit  so  much  of  said  tax  against  insolvent  State  and  savings 
banks  as  shall  be  found  to  affect  the  claims  of  their  depositors. 
161.  Appointment  and  Qualification  of  Shakeiioldees' 
Agent. —  Sec.  3  of  the  act  of  June  30,  1876,  as  amended  by 
acts  of  August  3,  1892,  and  March  2,  1897,  provides  that  when- 
ever any  association  shall  have  been  or  shall  be  placed  in  the 
hands  of  a  receiver,  as  provided  in  section  fifty- two  hundred 
and  thirty-four  and  other  sections  of  the  Revised  Statutes  of 
the  United  States,  and  when,  as  provided  in  section  fifty-two 
hundred  and  thirty-six  thereof,  the  Comptroller  of  the  Cur- 
rency shall  have  paid  to  each  and  every  creditor  of  such  asso- 
ciation, not  including  shareholders  who  are  creditors  of  such 
association,  whose  claim  or  claims  as  such  creditor  shall  have 
been  proved  or  allowed  as  therein  prescribed,  the  full  amount 
of  such  claims,  and  all  expenses  of  the  receivership  and  the 
redemption  of  the  circulating  notes  of  such  association  shall 
have  been  provided  for  by  depositing  lawful  money  of  the 
United  States  with  the  Treasurer  of  the  United  States,  the 
Comj^troller  of  the  Currency  shall  call  a  meeting  of  the  share- 
holders of  such  association  by  giving  notice  thereof  for  thirty 
days  in  a  newspaper  published  in  the  town,  city,  or  county 
where  the  business  of  such  association  was  carried  on,  or  if  no 
newspaper  is  there  published,  in  the  newspaper  published 
nearest  thereto.  At  such  meeting  the  shareholders  shall  de- 
termine whether  the  receiver  shall  be  continued  and  shall  wind 
up  the  affairs  of  such  association,  or  whether  an  agent  shall  be 
elected  for  that  purpose,  and  in  so  determining  the  said  share- 
holders shall  vote  by  ballot,  in  person  or  by  proxy,  each  share 
of  stock  entitling  the  holder  to  one  vote,  and  the  majority  of  the 
stock  in  value  and  number  of  shares  shall  be  necessary  to  de- 
termine whether  the  said  receiver  shall  be  continued,  or  whether 
an  agent  shall  be  elected.  In  case  such  majority  shall  deter- 
mine that  the  said  receiver  shall  be  continued,  the  said  receiver 
shall  thereupon  proceed  with  the  execution  of  his  trust,  and 
shall  sell,  dispose  of,  or  otherwise  collect  the  assets  of  the  said 
association,  and  shall  possess  all  the  powers  and  authority,  and 
be  subject  to  all  the  duties  and  liabilities  originally  conferred 
or  imposed  upon  him  by  his  appointment  as  such  receiver,  so 


Banking.  633 

far  as  t>he  same  remain  applicable.  In  case  the  said  meeting 
shall,  by  the  vote  of  a  majority  of  the  stock  in  value  and  num- 
ber of  shares,  determine  that  an  agent  shall  be  elected,  the  said 
meeting  shall  thereupon  proceed  to  elect  an  agent,  voting  by 
ballot,  in  person  or  by  proxy,  each  share  of  stock  entitling  the 
holder  to  one  vote,  and  the  person  who  shall  receive  votes  repre- 
senting at  least  a  majoritj^  of  stock  in  value  and  number  shall 
be  declared  the  agent  for  the  purposes  hereinafter  provided; 
and  whenever  any  of  the  shareholders  of  the  association  shall, 
after  the  election  of  such  agent,  have  executed  and  filed  a  bond 
to  the  satisfaction  of  the  Comptroller  of  the  Currency,  con- 
ditioned for  the  payment  and  discharge  in  full  of  each  and 
every  claim  that  may  thereafter  be  proved  and  allowed  by  and 
before  a  competent  court,  and  for  the  faithful  performance  of 
all  and  singular  the  duties  of  such  trust,  the  Comptroller  and 
the  receiver  shall  thereupon  transfer  and  deliver  to  such  agent 
all  the  undivided  or  uncollected  or  other  assets  of  such  associa- 
tion then  remaining  in  the  hands  or  subject  to  the  order  and 
control  of  said  Comptroller  and  said  receiver,  or  either  of  them ; 
and  for  this  purpose  said  Comptroller  and  said  receiver  are 
hereby  severally  empowered  and  directed  to  execute  any  deed, 
assignment,  transfer,  or  other  instrument  in  writing  that  may 
be  necessary  and  proper ;  and  upon  the  execution  and  delivery 
of  such  instrument  to  the  said  agent  the  said  Comptroller  and 
the  said  receiver  shall  by  virtue  of  this  act  be  discharged  from 
any  and  all  liabilities  to  such  association  and  to  each  and  all 
the  creditors  and  shareholders  thereof. 

162.  Duties  of  Shareholders'  Agent. —  Sec.  3  of  the  act 
of  June  30,  1876,  as  amended  by  acts  of  August  3,  1892,  and 
March  2,  1897,  provides:  Upon  receiving  such  deed,  assign- 
ment, transfer,  or  other  instrument,  the  person  elected  such 
agent  shall  hold,  control,  and  dispose  of  the  assets  and  property 
of  such  association  which  he  may  receive  under  the  terms 
hereof  for  the  benefit  of  the  shareholders  of  such  association, 
and  he  may  in  his  o^^Tl  name,  or  in  the  name  of  such  association, 
sue  and  be  sued  and  do  all  other  lawful  acts  and  things  neces- 
sary to  finally  settle  and  distribute  the  assets  and  property  in 
his  hands,  and  may  sell,  compromise,  or  compound  the  debts 
due  to  such  association,  with  the  consent  and  approval  of  the 


C34:  Appendix. 

circuit  or  district  court  of  the  United  States  for  the  district 
where  the  business  of  such  association  was  carried  on,  and  shall 
at  the  conclusion  of  his  trust  render  to  such  district  or  circuit 
court  a  full  account  of  all  his  proceedings,  receipts,  and  ex- 
penditures as  such  agent,  which  court  shall,  upon  due  notice, 
settle  and  adjust  such  accounts  and  discharge  said  agent  and 
the  sureties  upon  said  bond.  And  in  case  any  such  agent  so 
elected  shall  refuse  to  serve,  or  die,  resign,  or  be  removed,  any 
shareholder  may  call  a  meeting  of  the  shareholders  of  such 
association  in  the  town,  city,  or  village  where  the  business  of 
the  said  association  was  carried  on,  by  giving  notice  thereof 
for  thirty  days  in  a  newspaper  published  in  said  town,  city,  or 
village,  or  if  no  newspaper  is  there  published,  in  the  newspaper 
published  nearest  thereto,  at  which  meeting  the  shareholders 
shall  elect  an  agent,  voting  by  ballot,  in  person  or  by  proxy, 
each  share  of  stock  entitling  the  holder  to  one  vote,  and  when 
such  agent  shall  have  received  votes  representing  at  least  a 
majority  of  the  stock  in  value  and  number  of  shares,  and  shall 
have  executed  a  bond  to  the.  shareholders  conditioned  for  the 
faithful  performance  of  his  duties,  in  the  penalty  fixed  by  the 
shareholders  at  said  meeting,  with  two  sureties,  to  be  approved 
by  a  judge  of  a  court  of  record,  and  file  said  bond  in  the  office 
of  the  clerk  of  a  court  of  record  in  the  county  where  the  busi- 
ness of  said  association  was  carried  on,  he  shall  have  all  the 
rights,  powers,  and  duties  of  the  agent  first  elected  as  herein- 
before provided.  At  any  meeting  held  as  hereinbefore  pro- 
vided administrators  or  executors  of  deceased  shareholders  may 
act  and  sign  as  the  decedent  might  have  done  if  living,  and 
guardians  of  minors  and  trustees  of  other  persons  may  so  act 
and  sign  for  their  ward  or  wards  or  cestui  que  trust.  The 
proceeds  of  the  assets  or  property  of  any  such  association  which 
may  be  undistributed  at  the  time  of  such  meeting  or  may  be 
subsequently  received  shall  be  distributed  as  follows : 

"  First.  To  pay  the  expenses  of  the  execution  of  the  trust 
to  the  date  of  such  payment. 

"  Second.  To  repay  any  amount  or  amounts  which  have  been 
paid  in  by  any  shareholder  or  shareholders  of  such  association 
upon  and  by  reason  of  any  and  all  assessments  made  upon  the 
stock  of  such  association  by  the  order  of  the  Comptroller  of  the 


Baxkixg.  635 

Currency  in  accordance  with  the  provisions  of  the  statutes  of 
the  United  States  ;  and 

"  Third.  The  balance  ratably  among  such  stockholders,  in 
proportion  to  the  number  of  shares  held  and  owned  by  each. 
Such  distribution  shall  be  made  from  time  to  time  as  the  pro- 
ceeds shall  be  received  and  as  shall  be  deemed  advisable  by  the 
said  Comptroller  or  said  agent." 

163.  Illegal  Preference  of  Creditors.  (Sec.  5242.) 
All  transfers  of  the  notes,  bonds,  bills  of  exchange,  or  other 
evidences  of  debt  owing  to  any  national  banking  association, 
or  of  deposits  to  its  credit ;  all  assignments  of  mortgages,  sure- 
ties on  real  estate,  or  of  judgments  or  decrees  in  its  favor ;  all 
deposits  of  money,  bullion,  or  other  valuable  thing  for  its  use, 
or  for  the  use  of  any  of  its  shareholders  or  creditors ;  and  all 
payments  of  money  to  either,  made  after  the  commission  of  an 
act  of  insolvency,  or  in  contemplation  thereof,  made  with  a 
view  to  prevent  the  application  of  its  assets  in  the  manner  pre- 
scribed by  this  chapter,  or  w'ith  a  view  to  the  preference  of  one 
creditor  to  another,  except  in  payment  of  its  circulating  notes, 
shall  be  utterly  null  and  void.  ISTo  attachment,  injunction,  or 
execution  shall  be  issued  against  such  association  or  its  prop- 
erty before  final  judgment  in  any  suit,  action,  or  proceeding 
in  any  State,  county,  or  municipal  court. 

164.  Creditor's  Bill  Against  Shareholders. — Sec.  2  of 
the  act  of  June  30,  1876,  provides  that  when  any  national  bank- 
ing association  shall  have  gone  into  liquidation  under  the  pro- 
visions of  section  five  thousand  two  hundred  and  twenty  of  said 
statutes,  the  individual  liability  of  the  shareholders  provided 
for  bv  section  fiftv-one  hundred  and  fiitv-one  of  said  statutes 
may  be  enforced  by  any  creditor  of  such  association,  by  bill  in 
equity  in  the  nature  of  a  creditor's  bill,  brought  by  such  cred- 
itor on  behalf  of  himself  and  of  all  other  creditors  of  the  asso- 
ciation, against  the  shareholders  thereof,  in  any  court  of  the 
United  States  having  original  jurisdiction  in  equity  for  the 
district  in  which  such  association  may  have  been  located  or 
established. 


636  ArpEXDix. 

CRIMES,    JURISDICTION,   ETC. 

165.  Penalty   for  improper  counter-       174.  Penalty    for    having    such    im- 

signing  or  delivering  circula-  pressions. 

tion.  175.  Penalty  for  dealing  in  counter- 

166.  Penalty     for     pledging     United  feit  circulation. 

States   notes   or   bank   circu-       170.  Penalty  for  issuing  circulation 
lation.  of  expired  associations. 

167.  Penalty  for  imitating  bank  cir-       177.  False  certification  of  checks. 

culation  for  advertising  pur-       178.  Penalty    for    false   certification 
poses.  of  checks. 

168.  Penalty  for  mutilating  circula-       179.  Penalty  for  official  malfeasance. 

tion.'  ,  180.  Jurisdiction  of  circuit  courts  to 

169.  Penalty  for  counterfeiting  cir-  enjoin  Comptroller. 

culation.  181.  General      jurisdiction     of     na- 

170.  What    are    obligations    of    the  tional-bank  cases. 

United  States.  182.  Sealed     certificates     of     Comp- 

171.  Penalty    for    illegal    possession  troller     are     competent     evi- 

or  use  of  material  for  circu-  dence. 

lation.  183.  Certified   copy   of   organization 

172.  Penalty    for    passing    counter-  certificate  as  evidence. 

feit  circulation.  184.  Suits     against     Unite     dStates 

173.  Penalty    for    taking    unauthor-  oflicers  or  agents. 

ized' impressions  of  tools.  185.  Indian  Territory. 

165.  Penalty  for  Improper  Countersigning  or  De- 
livering Circulation.  (Sec.  5187.)  Xo  officer  acting 
binder  the  provisions  of  this  Title  shall  countersign  or  deliver 
to  any  association,  or  to  any  other  company  or  person,  any 
circulating  notes  contemplated  by  this  Title,  except  in  accord- 
ance with  the  true  intent  and  meaning  of  its  provisions.  Every 
officer  who  violates  this  section  shall  be  deemed  guilty  of  a 
high  misdemeanor,  and  shall  be  fined  not  more  than  double  the 
amount  so  countersigned  and  delivered,  and  imprisoned  not 
less  than  one  year  and  not  more  than  fifteen  years. 

166.  Penalty  for  Pledging  United  States  INotes  or 
Bank  Circulation.  (Sec.  5207.)  No  association  shall 
hereafter  offer  or  receive  United  States  notes  or  national-bank 
notes  as  security  or  as  collateral  security  for  any  loan  of  money, 
or  for  a  consideration  agree  to  withhold  the  same  from  use,  or 
offer  or  receive  the  custody  or  promise  of  custody  of  such  notes 
as  security,  or  as  collateral  security,  or  consideration  for  any 
loan  of  money.  Any  association  offending  against  the  pro- 
visions of  this  section  shall  be  deemed  guilty  of  a  misdemeanor, 
and  shall  be  fined  not  more  than  one  thousand  dollars  and  a 
further  sum  equal  to  one-third  of  the  money  so  loaned.  The 
officer  or  officers  of  any  association  who  shall  make  any  such 
loan  shall  be  liable  for  a  further  sum  equal  to  one-quarter  of 


Banking.  637 

the  money  loaned;  and  anv  fine  or  penalty  incurred  bv  a  vio- 
lation of  this  section  shall  be  recoverable  for  the  benefit  of 
the  party  bringing  such  suit.  Sec.  12  of  the  act  of  Julv  12, 
1882,  provides  that  the  provisions  of  this  section  shall  apply 
to  the  United  States  certificates  of  gold  and  silver  coin. 

167.  Penalty  for  Imitating  Bank  Circulation  for 
Advertising  Purposes.  (Sec.  5188.)  It  shall  not  be  lawful 
to  design,  engrave,  print,  or  in  any  manner  make  or  execute, 
or  to  utter,  issue,  distribute,  circulate,  or  use  any  business  or 
professional  card,  notice,  placard,  circular,  handbill,  or  adver- 
tisements in  the  likeness  or  similitude  of  any  circulating  note 
or  other  obligation  or  security  of  any  banking  association  or- 
ganized or  acting  under  the  laws  of  the  United  States  which 
has  been  or  may  be  issued  under  this  Title,  or  any  act  of  Con- 
gress, or  to  write,  print,  or  otherwise  impress  upon  any  such 
note,  obligation,  or  security  any  business  or  professional  card, 
notice,  or  advertisement,  or  any  notice  or  advertisement  of 
any  matter  or  thing  whatever.  Every  person  who  violates  this 
section  shall  be  liable  to  a  penalty  of  one  hundred  dollars,  re- 
coverable one-half  to  the  use  of  the  informer. 

168.  Penalty  for  Mutilating  Circulation.  (Sec. 
5189.)  Every  person  who  mutilates,  cuts,  defaces,  disfigures, 
or  perforates  with  holes,  or  unites  or  cements  together,  or  does 
any  other  thing  to  any  bank  bill,  draft,  note,  or  other  evidence 
of  debt,  issued  by  any  national  banking  association,  or  who 
causes  or  procures  the  same  to  be  done,  with  intent  to  render 
such  bank  bill,  draft,  note,  or  other  evidence  of  debt  unfit  to 
be  reissued  by  said  association,  shall  be  liable  to  a  penalty  of 
fifty  dollars,  recoverable  by  the  association. 

169.  Penalty  for  Counterfeiting  Circulation.  (Sec. 
5415.)  Every  person  who  falsely  makes,  forges,  or  counter- 
feits, or  causes  or  procures  to  be  made,  forged,  or  counter- 
feited, or  willingly  aids  or  assists  in  falsely  making,  forging,  or 
counterfeiting,  any  note  in  imitation  of,  or  purporting  to  be 
in  imitation  of,  the  circulating  notes  issued  by  any  banking  as- 
sociation now  or  hereafter  authorized  and  acting  under  the 
laws  of  the  United  States ;  or  who  passes,  utters,  or  publishes, 
or  attempts  to  pass,  utter,  or  publish,  any  false,  forged,  or 
counterfeited  note  purporting  to  be  issued  by  any  such  associa- 
tion doing  a  banking  business,  knowing  the  same  to  be  falsely 


G38  Appendix. 

made,  forged,  or  counterfeited,  or  who  falsely  alters,  or  causes 
or  procures  to  be  falsely  altered,  or  willingly  aids  or  assists  in 
falsely  altering  any  such  circulating  notes,  or  passes,  utters,  or 
publishes,  or  attempts  to  pass,  utter,  or  publish  as  true,  any 
falsely  altered  or  spurious  circulating  note  issue,  or  puiporting 
to  have  been  issued,  by  any  such  banking  association,  knowing 
the  same  to  be  falsely  altered  or  spurious,  shall  be  imprisoned 
at  hard  labor  not  less  than  five  years  nor  more  than  fifteen 
years,  and  fined  not  more  than  one  thousand  dollars. 

170.  What  aee  Oblicjatioxs  of  the  U:n"ited  Stx^tes. 
(Sec.  5413.)  The  words  "obligation  or  other  security  of  the 
United  States"  shall  be  held  to  mean  all  bonds,  certificates  of 
indebtedness,  national-bank  currency,  coupons.  United  States 
notes,  Treasury  notes,  fractional  notes,  certificates  of  deposit, 
bills,  checks,  or  drafts  for  money  drawn  by  or  upon  authorized 
officers  of  the  United  States,  stamj)s  and  other  representatives 
of  value,  of  whatever  denomination,  which  have  been  or  may 
[be]  issued  under  any  act  of  Congress. 

171.  Penalty  for  Illegal  Possession  ok  use  of  Ma- 
terial for  Circulation.  (Sec.  5430.)  Every  person  having 
control,  custody,  or  possession  of  any  plate,  or  any  part  thereof, 
from  which  has  been  printed,  or  which  may  be  prepared  by 
direction  of  the  Secretary  of  the  Treasury  for  the  purpose  of 
printing,  any  obligation  or  other  security  of  the  United  States, 
who  uses  such  plate,  or  knowingly  suffers  the  same  to  be  used 
for  the  purpose  of  printing  any  such  or  similar  obligation,  or 
other  security,  or  any  part  thereof,  except  as  may  be  printed 
for  the  use  of  the  United  States  by  order  of  the  proper  officer 
thereof ;  and  every  person  who  engraves,  or  causes  or  procures 
to  be  engraved,  or  assists  in  engraving,  any  plate  in  the  like- 
ness of  any  plate  designed  for  the  printing  of  such  obligation 
or  other  security,  or  who  sells  any  such  plate,  or  who  brings 
into  the  United  States  from  any  foreign  place  any  such  plate, 
except  under  the  direction  of  the  Secretary  of  the  Treasury  or 
other  proper  officer,  or  with  any  other  intent,  in  either  case, 
than  that  such  plate  be  used  for  the  printing  of  the  obligations 
or  other  securities  of  the  United  States ;  or  who  has  in  his  con- 
trol, custody,  or  possession  any  metallic  plate  engraved  after 
the  similitude  of  any  plate  from  which  any  such  obligation  or 
other  security  has  been  printed,  with  intent  to  use  such  plate, 


Banking.  639 

or  suffer  the  same  to  be  used  in  forging  or  counterfeiting  any 
such  obligation  or  other  security,  or  any  part  thereof ;  or  who 
has  in  his  possession  or  custody,  except  under  authority  from 
the  Secretary  of  the  Treasur)^  or  other  proper  officer,  any  ob- 
ligation or  other  security,  engraved  and  printed  after  the  simili- 
tude of  any  obligation  or  other  security  issued  under  the  au- 
thority of  the  United  States,  with  intent  to  sell  or  otherwise 
use  the  same;  and  every  person  who  prints,  photographs,  or 
in  any  other  manner  makes  or  executes,  or  causes  to  be  printed, 
photographed,  made,  or  executed,  or  aids  in  printing,  photog- 
raphing, making,  or  executing  any  engraving,  photograph, 
print,  or  impression  in  the  likeness  of  any  such  obligation  or 
other  security,  or  any  part  thereof,  or  who  sells  any  such  en- 
graving, photograph,  print,  or  impression,  except  to  the  United 
States,  or  who  brings  into  the  United  States  from  any  foreign 
place  any  such  engraving,  photograph,  print,  or  impression,  ex- 
cept by  direction  of  some  proper  officer  of  the  United  States, 
or  who  has  or  retains  in  his  control  or  possession,  after  a  dis- 
tinctive paper  has  been  adopted  by  the  Secretary  of  the  Treas- 
ury for  the  obligations  and  other  securities  of  the  United 
States,  any  similar  paper  adapted  to  the  making  of  any  such 
obligation  or  other  security,  except  under  the  authority  of  the 
Secretary  of  the  Treasury  or  some  other  proper  officer  of  the 
United  States,  shall  be  punished  by  a  fine  of  not  more  than  five 
thousand  dollars,  or  by  imprisonment  at  hard  labor  not  more 
than  fifteen  years,  or  by  both. 

172.  Penalty  for  Passing  Counterfeit  Circulation. 
(Sec.  5431.)  Every  person  who,  with  intent  to  defraud, 
passes,  utters,  publishes,  or  sells,  or  attempts  to  pass,  utter, 
publish,  or  sell,  or  bring  into  the  United  States  with  intent 
to  pass,  publish,  utter,  or  sell,  or  keeps  in  possession  or  conceals, 
"with  like  intent,  any  falsely  made,  forged,  counterfeited,  or 
altered  obligation,  or  other  security  of  the  United  States,  shall 
be  punished  by  a  fine  of  not  more  than  five  thousand  dollars 
and  by  imprisonment  at  hard  labor  not  more  than  fifteen  years. 

173.  Penalty  for  Taking  Unauthorized  Impression  of 
Tools.  (Sec.  5432.)  Every  person  who,  without  authority 
from  the  United  States,  takes,  procures,  or  makes,  upon  lead, 
foil,  wax,  plaster,  paper,  or  any  other  substance  or  material, 
an  impression,  stamp,  or  imprint  of,  from,  or  by  the  use  of,  any 


640  Appendix. 

bedplate,  bedpiece,  die,  roll,  plate,  seal,  type,  or  other  tool, 
implement,  instrument,  or  thing  nsed  or  fitted,  or  intended  to 
be  used,  in  printing,  stamping,  or  impressing,  or  in  making 
other  tools,  implements,  instruments,  or  things,  to  be  used,  or 
fitted  or  intended  to  be  used,  in  printing,  stamping,  or  impress- 
ing any  kind  or  description  of  obligation  or  other  security  of 
the  United  States,  now  authorized  or  hereafter  to  be  author- 
ized by  the  United  States,  or  circulating  note  or  evidence  of 
debt  of  any  banking  association  under  the  laws  thereof,  shall 
be  punished  by  imprisonment  at  hard  labor  not  more  than  ten 
years,  or  by  a  fine  of  not  more  than  five  thousand  dollars,  or 
both. 

174.  Penalty  fok  Having  such  Impkessions.  (Sec. 
5433.)  Every  person  who,  with  intent  to  defraud,  has  in  his 
possession,  keeping,  custody,  or  control,  without  authority  from 
the  United  States,  any  imprint,  stamp,  or  impression,  taken 
or  made  upon  any  substance  or  material  whatsoever,  of  any 
tool,  implement,  instrument,  or  thing  used,  or  fitted,  or  in- 
tended to  be  used  for  any  of  the  purposes  mentioned  in  the 
preceding  section ;  or  who,  with  intent  to  defraud,  sells,  gives, 
or  delivers  any  such  imprint,  stamp,  or  impression  to  any  other 
person,  shall  be  punished  by  imprisonment  at  hard  labor  not 
more  than  ten  years,  or  by  a  fine  of  not  more  than  five  thou- 
sand dollars. 

175.  Penalty  for  Dealing  in  CountePvFeit  Circulation. 
(Sec.  5434.)  Every  person  who  buys,  sells,  exchanges,  trans- 
fers, receives,  or  delivers  any  false,  forged,  counterfeited,  or 
altered  obligation  or  other  security  of  the  United  States,  or 
circulating  note  of  any  banking  association  organized  or  acting 
under  the  laws  thereof,  which  has  been  or  may  hereafter  be 
issued  by  virtue  of  any  act  of  Congress,  with  the  intent  that 
the  same  be  passed,  published,  or  used  as  true  and  genuine, 
shall  be  imprisoned  at  hard  labor  not  more  than  ten  years,  or 
fined  not  more  than  five  thousand  dollars,  or  both. 

176.  Penalty  for  Issuing  Circulation  of  Expired 
Associations.  (Sec.  5437.)  Tn  all  cases  where  the  charter 
of  any  corporation  which  has  been  or  may  be  created  by  act  of 
Congress  has  expired  or  may  hereafter  expire,  if  any  director, 
officer,  or  agent  of  the  corporation,  or  any  trustee  thereof  or 
any  agent  of  such  trustee,  or  any  person  having  in  his  posses- 


BaxivIXg.  641 

sion  or  under  his  control  the  property  of  the  corporation  for 
the  purpose  of  paying  or  redeeming  its  notes  and  obligations, 
knowingly  issues,  reissues,  or  utters  as  money,  or  in  any  other 
wav  knowingly  puts  in  circulation  any  bill,  note,  check,  draft, 
or  other  security  purporting  to  haye  been  made  by  any  such 
ecrporation  whose  charter  has  expired,  or  by  any  officer  thereof, 
or  jDurporting  to  have  been  made  under  authority  derived 
therefrom,  or  if  any  person  knowingly  aids  in  any  such  act,  he 
shall  be  punished  by  a  fine  of  not  more  than  ten  thousand  dol- 
lars, or  by  imprisonment  not  less  than  one  year  nor  more 
than  fiye  years,  or  by  both  such  fine  and  imprisonment.  But 
nothing  herein  shall  be  construed  to  make  it  unlawful  for  any 
person,  not  being  such  director,  officer,  or  agent  of  the  cor- 
poration, or  any  trustee  thereof,  or  any  agent  of  such  trustee, 
or  any  person  haying  in  his  possession  or  under  his  control  the 
property  of  the  corporation  for  the  purpose  hereinbefore  set 
forth,  who  has  received  or  may  hereafter  receive  such  bill,  note, 
check,  draft,  or  other  security,  bona  fide  and  in  the  ordinary 
transactions  of  business,  to  utter  as  money  and  otherwise  cir- 
culate the  same. 

177.  False  Certification  of  Checks.  (Sec.  5:208.) 
It  shall  be  unlawful  for  any  officer,  clerk,  or  agent  of  any 
national  banking  association  to  certify  any  check  drawn  upon 
the  association  unless  the  person  or  company  drawing  the  check 
has  on  deposit  with  the  association,  at  the  time  such  check  is 
certified,  an  amount  of  money  equal  to  the  amount  specified  in 
such  check.  Any  check  so  certified  by  duly  authorized  officers 
shall  be  a  good  and  valid  obligation  against  the  association;  but 
the  act  of  any  officer,  clerk,  or  agent  of  any  association,  in 
violation  of  this  section,  shall  subject  such  bank  to  the  liabili- 
ties and  proceedings  on  the  part  of  the  Comptroller  as  provided 
for  in  section  fifty-two  hundred  and  thirty-four. 

178.  Pexalty  foe  False  Certification  of  Checks. — 
Sec.  13  of  the  act  of  July  12,  1882,  provides  that  any  officer, 
clerk,  or  agent  of  any  national  banking  association  who  shall 
willfulh"  violate  the  provisions  of  section  fifty-two  hundred  and 
eight  of  the  Revised  Statutes  of  the  United  States,  or  who  shall  ' 
resort  to  any  device,  or  receive  any  fictitious  obligation,  direct 
or  collateral,  in  order  to  evade  the  provisions  thereof,  or  who 

41 


042  Appendix. 

sliall  certify  clieeks  before  the  amount  thereof  shall  have  been 
regularly  entered  to  the  credit  of  the  dealer  upon  the  books  of 
the  banking  association,  shall  be  deemed  guilty  of  a  misde- 
meanor and  shall,  on  conviction  thereof  in  any  circuit  or  dis- 
trict court  of  the  United  States,  be  fined  not  more  than  five 
thousand  dollars,  or  shall  be  imprisoned  not  more  than  five 
years,  or  both,  in  the  discretion  of  the  court. 

179.  Penalty  for  Official  M.^lfeasancf.  (Sec.  5200.) 
Every  president,  director,  cashier,  teller,  clerk,  or  agent  of  any 
association  who  embezzles,  abstracts,  or  willfully  misapplies 
any  of  the  moneys,  funds,  or  credits  of  the  association,  or  who, 
without  authority  from  the  directors,  issues  or  puts  in  circu- 
lation any  of  the  notes  of  the  association ;  or  who,  without  such 
authority,  issues  or  puts  forth  any  certificate  of  deposit,  draws 
any  order  or  bill  of  exchange,  makes  any  acceptance,  assigns 
any  note,  bond,  draft,  bill  of  exchange,  mortgage,  judgment, 
or  decree;  or  who  makes  any  false  entry  in  any  book,  report, 
or  statement  of  the  association,  with  intent,  in  either  case,  to 
injure  or  defraud  the  association  or  any  other  company,  body 
politic  or  corporate,  or  any  individual  person,  or  to  deceive  any 
officer  of  the  association  or  any  agent  appointed  to  examine  the 
afi"airs  of  any  such  association;  and  every  person  who  with  like 
intent  aids  or  abets  any  officer,  clerk,  or  agent  in  any  violation 
of  this  section,  shall  be  deemed  guilty  of  a  misdemeanor,  and 
shall  be  imprisoned  not  less  than  five  years  nor  more  than  ten. 

180.  Jurisdiction  of  Circuit  Courts  to  Enjoin  Comp- 
troller. (Sec.  629.)  The  circuit  courts  shall  have  original 
jurisdiction  of  all  suits  brought  by  any  banking  association 
established  in  the  district  for  which  the  court  is  held,  under  the 
provisions  of  Title  "  Tub  Xational  Banks,"  to  enjoin  the 
Comptroller  of  the  Currency,  or  any  receiver  acting  under  his 
direction,  as  provided  by  said  Title. 

181.  General  Jurisdiction  of  National-Bank  Cases. — 
Sec.  4  of  the  act  of  July  12,  1882,  provides  that  the  jurisdiction 
for  suits  hereafter  brought  by  or  against  any  association  estab- 
lished under  any  law  providing  for  national  banking  associa- 
tions, except  suits  between  them  and  the  United  States  or  its 
oificers  and  agents,  shall  be  the  same  as,  and  not  other  than,  the 
jurisdiction  for  suits  by  or  against  banks  not  organized  under 
any  law  of  the  United  States  which  do  or  might  do  banking 


Banking.  643 

business  where  such  national  banking  associations  may  be  doing 
business  when  such  suits  may  be  begun.  And  all  laws  and  parts 
of  laws  of  the  United  States  inconsistent  with  this  proviso  be, 
and  the  same  are  hereby,  repealed.  Sec.  4  of  the  act  of  March 
3,  1887,  provides  that  all  national  banking  associations  estab- 
lished under  the  laws  of  the  United  States  shall,  for  the  pur- 
poses of  all  actions  by  or  against  them,  real,  personal,  or  mixed, 
and  all  suits  in  equity,  be  deemed  citizens  of  the  States  in 
which  they  are  respectively  located;  and  in  such  cases  the  cir- 
cuit and  district  courts  shall  not  have  jurisdiction  other  than 
such  as  they  would  have  in  cases  between  individual  citizens  of 
the  same  State.  The  provisions  of  this  section  shall  not  be  held 
to  affect  the  jurisdiction  of  the  courts  of  the  United  States  in 
cases  commenced  by  the  United  States  or  by  direction  of  any 
officer  thereof,  or  cases  for  winding  up  the  affairs  of  any  such 
bank. 

182.  Sealed  Cektificates  of  Comptroller  aee  Compe:- 
TENT  Evidence.  (Sec.  884.)  Every  certificate,  assignment, 
and  conveyance  executed  by  the  Comptroller  of  the  Currency,  in 
pursuance  of  law,  and  sealed  with  his  seal  of  office,  shall  be 
received  in  evidence  in  all  places  and  courts;  and  all  copies  of 
papers  in  his  office,  certified  by  him  and  authenticated  by  the 
said  seal,  shall  in  all  cases  be  evidence  equally  with  the  originals. 
An  impression  of  such  seal  directly  on  the  paper  shall  be  as 
valid  as  if  made  on  wax  or  wafer. 

183.  Cektified  Copy  of  Organization  Certificate  as 
Evidence.  (Sec.  885.)  Copies  of  the  organization  certificate 
of  any  national  banking  association,  duly  certified  liv  the  Comp- 
troller of  the  Currency  and  authenticated  by  his  seal  of  office, 
shall  be  evidence  in  all  courts  and  places  within  the  jurisdiction 
of  the  United  States  of  the  existence  of  the  association  and  of 
every  matter  which  could  be  proved  by  the  production  of  the 
original  certificate. 

184.  Suits  Against  United  States  Officers  or  Agents. 
(Sec.  380.)  All  suits  and  proceedings  arising  out  of  the  pro- 
visions of  law  governing  national  banking  associations,  in  which 
the  United  States  or  any  of  its  officers  or  agents  shall  be  par- 
ties, shall  be  conducted  by  the  district  attorneys  of  the  several 
districts  under  the  direction  and  supervision  of  the  Solicitor  o£ 
the  Treasury. 


G-i4 


Appendix. 


185.  Indian  Territory. — Sec.  31  of  the  Act  of  May  2, 
1890,  provides  that  all  laws  relating  to  national  banking  asso- 
ciations shall  have  the  same  force  and  effect  in  Indian  Territory 
Qs  elsewhere  in  the  United  States. 


TRUST    COMPANIES,    ETC.,    DISTRICT    OF    COLUMBIA. 


186.  Provision  for  organization.  20.3. 

187.  Organization  certificate  of  com-       204. 

pany.  205. 

188.  Charter  obtained  from  District       206. 

Commissioners.  207. 

189.  Notice  of  intention  to  apply  for 

charter.  208. 

190.  Charter   filed   with   recorder   of 

deeds  for  the  District.  209. 

191.  Trust  companies    under   Comp-       210. 

troUer's  .supervision.  211. 

192.  Powers  of  these  companies. 

193.  Competent    to    act    as    trustee,       212. 

etc. 

194.  Qualifications   of  such   trustee,       21.3. 

etc. 

195.  Security   for   faithful   perform-       214. 

ance  of  trust. 

196.  Privileges  extended  to  existing       215. 

corporations.  216. 

197.  Real  estate. 

198.  Period    of    corporation's    exist- 

ence. 217. 

199.  Provisions    relating    to    capital 

stock.  218. 

200.  Enforcement     of     subscriptions 

to  stock.  219. 

201.  Annual   report  to  Comptroller. 

202.  Tax  on  gross  earnings.  220. 


Liability  for  failure  to  report. 

Perjury  and  larceny. 

Transfer  of  stock. 

Liability  of  stockholders. 

Money  payment  of  capital  stock 
required. 
Number  and  election  of  direc- 
tors. 

Appointment  of  officers. 

By-laws. 

Directors  liable  for  payment  of 
unearned  dividends. 

Directors'  liability  may  be 
avoided. 

Responsibility  of  directors  for 
excess  liabilities. 

Trustee,  etc.,  not  liable  ou 
stock  assessment. 

Increase  of  capital. 

Certified  copy  of  incorporation 
certificate  competent  evi- 
dence. 

No  bond  or  other  security'  i-e- 
quired  of  trust  companies. 

District  supreme  court  has  jur- 
isdiction of  trust  companies. 

All  similar  District  corpora- 
tions subject  to  this  act. 

Provisions  for  amendment. 


186.  Provision  for  Organization. — The  act  of  October  1, 
1890,  sec.  1,  provides  that  corporations  may  be  formed  within 
the  District  of  Columbia  for  the  purposes  hereinafter  men- 
tioned in  the  following  manner:  Any  time  hereafter  any  num- 
ber of  natural  persons,  citizens  of  the  United  States,  not  less 
than  twenty-five,  may  associate  themselves  together  to  form  a 
company  for  the  purpose  of  carrying  on  in  the  District  of 
Columbia  any  one  of  the  three  classes  of  business  herein  speci- 
fied, to  mt: 

First.   A  safe  deposit,  trust,  loan,  and  mortgage  business. 

Second.   A  title  insurance,  loan,  and  mortgage  business. 

Third.   A  security,  guaranty,  indemnity,  loan,  and  mortgage 


Banking.  645 

business:  Provided,  That  the  capital  stock  of  any  of  said  com- 
panies shall  not  be  less  than  one  million  of  dollars:  Provided 
further,  That  any  of  said  companies  may  also  do  a  storage  busi- 
ness when  their  capital  stock  amounts  to  the  sum  of  not  less 
than  one  million  two  hundred  thousand  dollars. 

187.  Okganization  Cektificate  of  Company.  (Sec.  2.) 
That  such  persons  ffhall,  under  their  hands  and  seals,  execute, 
before  some  officer  in  said  District  competent  to  take  the  ac- 
knowledgement of  deeds,  an  organization  certificate,  which 
shall  specifically  state  — 

First.     Title. —  The  name  of  the  corporation. 

Second.   Purposes. —  The  purposes  for  which  it  is  formed. 

Third.  Period  of  existence. —  The  term  for  which  it  is  to 
exist,  which  shall  not  exceed  the  term  of  fifty  years,  and  be 
subject  to  alteration,  amendment,  or  repeal  by  Congress  at  any 
time. 

Fourth.  Officers. —  The  number  of  its  directors,  and  the 
names  and  residences  of  the  officers  who  for  the  first  year  are 
to  manage  the  affairs  of  the  company. 

Fifth.  Capital  stock. —  The  amount  of  the  capital  stock  and 
ito  subdivision  into  shares. 

188.  Charter  Obtained  from  District  Commissioners. 
(Sec.  3.)  That  this  certificate  shall  be  presented  to  the  Com- 
missioners of  the  District,  who  shall  have  power  and  discretion 
to  grant  or  to  refuse  to  said  persons  a  charter  of  incorporation 
upon  the  terms  set  forth  in  the  said  certificate  and  the  pro- 
visions of  this  act. 

189.  ISToTiCE  OF  Intention  to  Apply  for  Charter.  (Sec. 
4.)  That  previous  to  the  presentation  of  the  said  certificate  to 
the  said  Commissioners  notice  of  the  intention  to  apply  for 
such  charter  shall  be  inserted  in  two  newspapers  of  general 
circulation  printed  in  the  District  of  Columbia  at  least  four 
times  a  week  for  three  weeks,  setting  forth  briefly  the  name  of 
the  rsroposed  company,  its  character  and  object,  the  names  of 
the  proposed  corporators,  and  the  intention  to  make  application 
for  a  charter  on  a  specified  day,  and  the  proof  of  such  publica- 
tion shall  be  presented  with  said  certificate  when  presentation 
tliereof  is  made  to  said  Commissioners. 

190.  Charter  Fieed  with  Recorder  of  Deeds  for  the 
District.     (Sec.  5.)     That  if  the  charter  be  granted  as  afore- 


646  Appendix. 

said  it,  together  with  the  certificate  of  the  Commissioners 
granting  the  same  indorsed  thereon,  shall  be  tiled  for  record  in 
the  ofhce  of  the  recorder  of  deeds  for  the  District  of  Columbia, 
and  shall  be  recorded  by  him.  On  the  filing  of  the  said  cer- 
tificate with  the  said  recorder  of  deeds  as  herein  provided,'  ap- 
proved as  aforesaid  by  the  said  Commissioners,  the  persons 
named  therein  and  their  successors  shall  thereupon  and  thereby 
be  and  become  a  body  corjDorate  and  politic,  and  as  such  shall  be 
vested  with  all  the  powers  and  charged  with  all  the  liabilities 
conferred  upon  and  imposed  by  this  act  upon  companies  organ- 
ized under  the  provisions  hereof:  Provided,  liowever,  That  no 
corjioration  created  and  organized  under  the  provisions  hereof, 
or  availing  itself  of  the  provisions  hereof  as  provided  in  section 
eleven,  shall  be  authorized  to  transact  the  business  of  a  trust 
company,  or  any  business  of  a  fiduciary  character,  until  it  shall 
have  filed  with  the  Comptroller  of  the  Currency  a  copy  of  its 
certificate  of  organization  and  charter  and  shall  have  obtained 
from  him  and  filed  the  same  for  record  with  the  said  recorder  of 
deeds  ?l  certificate  that  the  capital  stock  of  said  company  has 
been  paid  in  and  the  deposit  of  securities  made  with  said  Comp- 
troller in  the  manner  and  to  the  extent  required  by  this  act. 

191.  Trust  Companies  under  Comptroller's  Super- 
vision. (Sec.  6.)  That  all  companies  organized  hereunder, 
or  which  shall  under  the  provisions  hereof  become  entitled 
to  transact  the  business  of  a  trust  company,  shall  report 
to  the  Comptroller  of  the  Currency  in  the  manner  prescrilied 
by  sections  fifty-two  hundred  and  eleven,  fifty-two  hundred  and 
twelve,  and  fifty-two  hundred  and  thirteen,  Revised  Statutes 
of  the  United  States,  in  the  case  of  national  banks,  and  all  acts 
amendatory  thereof  or  supplementary  thereto,  and  with  similar 
provisions  for  compensating  examiners,  and  shall  be  subject  to 
like  penalties  for  failure  to  do  so.  The  Comptroller  shall  have 
and  exercise  the  same  visitorial  powers  over  the  affairs  of  the 
said  corporation  as  is  conferred  upon  him  by  section  fifty-two 
himdred  and  forty  of  the  Revised  Statutes  of  the  United  States 
in  the  case  of  national  banks.  He  shall  also  have  power,  when 
in  his  opinion  it  is  necessary,  to  take  possession  of  any  such 
company  for  the  reasons  and  in  the  manner  and  to  the  same 
extent  as  are  provided  in  the  laws  of  the  United  States  with 
respect  to  national  banks. 


Baxkixg.  647 

192.  Powers  of  These  Compaxies.  (Sec.  7.)  That  all 
companies  organized  under  this  act  are  hereby  declared  to  be 
corporations  possessed  of  the  powers  and  functions  of  corpora- 
tions generally,  and  shall  have  power — 

First.    Contracts. —  To  make  contracts. 

Second.  Suits. —  To  sue  and  be  sued,  implead  and  be  im- 
pleaded, in  any  court  as  fully  as  natural  persons. 

Third.  Seal. —  To  make  and  use  a  common  seal  and  alter 
the  same  at  pleasure. 

Fourth.    Loans. —  To  loan  money. 

Fifth.  Special  powers. —  When  organized  under  subdiyision 
one  of  the  first  section  of  this  act  to  accept  and  execute  trusts 
of  any  and  every  description  which  may  be  committed  or  trans- 
ferred to  them,  and  to  accept  the  office  and  perform  the  duties 
of  a  receiver,  assignee,  executor,  administrator,  guardian  of  the 
estates  of  minors,  with  the  consent  of  the  guardian  of  the  per- 
son of  such  minor,  and  committee  of  the  estates  of  lunatics  and 
idiots  whenever  any  trusteeship  or  any  such  office  or  appoint- 
ment is  committed  or  transferred  to  them,  with  their  consent, 
by  any  person,  body  politic  or  corporate,  or  by  any  court  in  the 
District  of  Columbia,  and  all  such  companies  organized  under 
the  first  subdivision  of  section  one  of  this  act  are  further  au- 
thorized to  accept  deposits  of  money  for  the  purposes  desig- 
nated herein  upon  such  terms  as  may  be  agreed  upon  from  time 
to  time  with  depositors,  and  to  act  as  agent  for  the  purpose  of 
issuing  or  countersigning  the  bonds  or  obligations  of  any  cor- 
poration, association,  municipality,  or  State,  or  other  public 
authority,  and  to  receive  and  manage  any  sinking  fund  on  any 
such  terms  as  may  be  agTeed  upon,  and  shall  have  power  to  issue 
its  debenture  bonds  upon  deeds  of  trust  or  mortgages  of  real 
estate  to  a  sum  not  exceeding  the  face  value  of  said  deeds  of 
trust  or  mortgages,  and  which  shall  not  exceed  fifty  per  centum 
of  the  fair  cash  value  of  the  real  estate  covered  by  said  deeds 
or  mortgages,  to  be  ascertained  by  the  Comptroller  of  the  Cur- 
rencyr  But  no  debenture  bonds  shall  be  issued  until  the 
securities  on  which  the  same  are  based  have  been  placed  in  the 
actual  possession  of  the  trustee  named  in  the  debenture  bonds, 
who  shall  hold  said  securities  until  all  of  said  bonds  are  paid ; 
and  when  organized  under  the  second  subdivision  of  the  first 
section  of  this  act  said  company  is  authorized  to  insure  titles 


Q-iS  Appendix. 

to  real  estate  aud  to  transact  generally  the  business  mentioned 
in  said  subdivision;  and  when  organized  under  the  third  sub- 
division of  section  one  of  this  act  said  company  is  hereby 
authorized,  in  addition  to  the  loan  and  mortgage  business 
therein  mentioned,  to  secure,  guaranty,  and  insure  individuals, 
bodies  politic,  associations,  and  corporations  against  loss  by  or 
through  trustees,  agents,  servants,  or  emj)loyees,  and  to  guar- 
anty the  faithful  performance  of  contracts  and  of  obligations  of 
whatever  kind  entered  into  by  or  on  the  part  of  any  person  or 
persons,  association,  corporation  or  corporations,  and  against 
loss  of  every  kind:  Provided,  That  any  corporation  formed 
under  the  provisions  of  this  act  when  acting  as  trustee  shall  be 
liable  to  account  for  the  amounts  actually  earned  by  the  moneys 
held  by  it  in  trust  in  addition  to  the  principal  so  held ;  but  such 
corporation  may  be  allowed  a  reasonable  compensation  for 
services  performed  in  the  care  of  the  trust  estate. 

193.  Competent  to  Act  as  Teustee,  etc.  (Sec.  8.)  That 
in  all  cases  in  which  application  shall  be  made  to  any  court  in 
the  District  of  Columbia,  or  wherever  it  becomes  necessary  or 
proper  for  said  court  to  appoint  a  trustee,  receiver,  admin- 
istrator, guardian  of  the  estate  of  a  minor,  or  committee  of  the 
estate  of  a  lunatic,  it  shall  and  may  be  lawful  for  said  court 
(but  without  prejudice  to  any  preference  in  the  order  of  any 
such  appointments  required  by  existing  law)  to  appoint  any 
such  company  organized  under  the  first  subdivision  of  section 
one  of  this  act,  w'ith  its  assent,  such  trustee,  receiver,  admin- 
istrator, committee,  or  guardian,  with  the  consent  of  the  guard- 
ian of  the  person  of  such  minor:  Provided,  however.  That  no 
court  or  judge  Avho  is  an  o\\Tier  of  or  in  any  manner  financially 
interested  in  the  stock  or  business  of  such  corporation  shall 
commit  by  order  or  decree  to  any  such  corporation  any  trust  or 
fiduciary  duty. 

194.  QualificatiojS's  of  Such  Trustee,  etc.  (Sec.  9.) 
That  whenever  any  corporation  operating  under  this  act  shall 
be  appointed  such  trustee,  executor,  administrator,  receiver, 
assignee,  guardian,  or  committee  as  aforesaid,  the  president, 
vice-president,  secretary,  or  treasurer  of  said  company  shall 
take  the  oath  or  affirmation  now  required  by  law  to  be  made  by 
any  trustee,  executor,  receiver,  assignee,  guardian,  or  com- 
mittee. 


Banking.  649 

105.  Security  for  Faithful  Performance  of  Trust. 
(Sec.  10.)  That  when  any  court  shall  appoint  the  said  com- 
pany a  trustee,  receiver,  administrator,  or  such  guardian,  or 
connittee,  or  shall  order  the  deposit  of  money  or  other  valu- 
ables "with  said  com^^anv,  or  where  any  individual  or  corpora- 
tion shall  apjwint  any  of  said  companies  a  trustee,  executor, 
assignee,  or  such  guardian,  the  capital  stock  of  said  company, 
subscribed  foT  or  taken,  and  all  property  owned  by  said  company, 
together  with  the  liability  of  the  stockholders  and  officers  as 
herein  provided,  shall  be  taken  and  considered  as  the  security 
required  by  law  for  the  faithful  performance  of  its  duties,  and 
shall  be  absolutely  lialde  in  case  of  any  default  whatever. 

19(3.  Privileges  Extended  to  Existing  Corporations. 
(Sec.  11.)  That  any  safe  deposit  company,  trust  company, 
surety  or  guaranty  company,  or  title-insurance  company  now 
incorporated  and  operating  under  the  laAvs  of  the  United  States 
or  of  the  District  of  Columbia,  or  any  of  the  States,  and  now 
doing  business  in  said  District,  may  avail  itself  of-  the  pro- 
visions of  this  act  on  filing  in  the  office  of  the  recorder  of  deeds 
of  the  District  of  Columbia,  or  with  the  Comptroller  of  the 
Currency,  a  certificate  of  its  intention  to  do  so,  which  cer- 
tificate shall  specify  which  one  of  the  three  classes  of  business 
set  out  in  section  one  it  will  carry  on,  and  shall  be  verified  by 
the  oath  of  its  president  to  the  effect  that  it  has  in  every  respect 
complied  with  the  requirements  of  existing  law,  especially  with 
the  provisions  of  this  act;  that  its  capital  stock  is  paid  in  as 
provided  in  section  twenty-one  of  this  act  and  is  not  impaired, 
and  thereafter  such  company  may  exercse  all  powers  and  per- 
form all  duties  authorized  by  any  one  of  the  subdivisions  of 
section  one  of  this  act  in  addition  to  the  powers  now  lawfully 
exercised  by  such  company. 

197.  Eeal  Estate.  (Sec.  12.)  That  any  company  oper- 
ating under  this  act  may  lease,  purchase,  hold,  and  convey  real 
estate,  not  exceeding  in  value  five  hundred  thousand  dollars, 
and  such  in  addition  as  it  may  acquire  in  satisfaction  of  debts 
due  the  corporation,  under  sales,  decrees,  judgments,  and  mort- 
gages. But  no  such  association  shall  hold  the  possession  of  any 
real  estate  under  foreclosure  of  mortgage,  or  the  title  and  pos- 
session of  any  real  estate  purchased  to  secure  any  debts  due  to 
it,  for  a  longer  period  than  five  years. 


650  Appe:sdix. 

198.  Period  of  Coepokations'  Existence.  (Sec.  13.) 
That  the  charters  for  incorporations  named  in  this  act  may  be 
made  perpetual,  or  may  be  limited  in  time  by  their  provisions, 
subject  to  the  approval  of  Congress. 

199.  Provisions  Relating  to  Capital  Stock.  (Sec.  14.) 
That  the  capital  stock  of  every  such  company  shall  be  at  least 
one  million  dollars,  and  at  least  fifty  per  centum  thereof  must 
have  been  paid  in,  in  cash  or  by  the  transfer  of  assets  as  here- 
inafter provided  in  section  twenty-one  of  this  act,  before  any 
such  company  shall  be  entitled  to  transact  business  as  a  corpora- 
tion, except  with  its  own  members,  and  before  any  company 
organized  hereunder  shall  be  entitled  to  transact  the  business 
of  a  trust  company,  or  to  become  and  act  as  an  administrator, 
executor,  guardian  of  the  estate  of  a  minor,  or  undertake  any 
other  kindred  fiduciary  duty,  it  shall  deposit,  either  in  money 
or  in  bonds,  mortgages,  deed  of  trust,  or  other  securities  equal 
in  actual  value  to  one-fourth  of  the  capital  stock  paid  in,  with 
the  Comptroller  of  the  Currency,  to  be  kept  by  him  upon  the 
trust  and  for  the  purposes  hereinafter  provided;  and  the  said 
Comptroller  may  from  time  to  time  require  an  additional  de- 
posit from  any  such  company,  to  be  held  upon  and  for  the  same 
trust  and  purposes,  not  exceeding,  however,  in  value  one-half 
the  i^aid-in  capital  stock ;  and  the  said  Comptroller  shall  not 
issue  to  any  corporation  the  certificate  heretofore  provided  for 
until  said  deposit  with  him  of  securities  required  by  this  sec- 
tion. Within  one  year  after  the  organization  of  any  coipora- 
tion  under  the  provisions  of  this  act,  or  after  any  corporation 
heretofore  existing  shall  have  availed  itself  of  the  powers  and 
rights  given  by  this  act  in  the  manner  herein  provided  for,  its 
entire  capital  stock  shall  have  been  paid  in. 

200.  Enforcement  of  Subscriptions  to  Stock.  (Sec. 
15.)  That  the  capital  stock  of  every  such  company  shall  ho 
divided  into  shares  of  one  hundred  dollars  each.  It  shall  be 
lawful  for  such  company  to  call  for  and  demand  from  the 
stockholders,  respectively,  all  sums  of  money  by  them  sub- 
scribed, at  such  time  and  in  such  proportions  as  its  board  of 
directors  shall  deem  proper,  witliin  the  time  specified  in  sec- 
tion fourteen,  and  it  may  enforce  payment  by  all  remedie;^ 
provided  by  law;  and  if  any  stockholder  shall  refuse  or  neg- 
lect to  pay  any  installment  as  required  by  a  resolution  of  the 


Banking.  651 

board  of  directors,  after  thirty  days'  notice  of  tlie  same,  the 
said  board  of  directors  mar  sell  at  public  auction,  to  the  high- 
est bidder,  so  many  shares  of  said  stock  as  shall  pay  said  in- 
stallment, under  such  general  reg-ulations  as  may  be  adopted 
in  the  by-laws  of  said  company,  and  the  highest  bidder  shall 
be  taken  to  be  the  person  who  offers  to  purchase  the  least  num- 
ber of  shares  for  the  assessment  due. 

201.  Annual  Report  TO  Comptroller.  (Sec.  16.)  That 
■every  such  company  shall  annually,  within  twenty  days  after 
the  first  of  January  of  each  year,  make  a  report  to  the  Comp- 
troller of  the  Currency,  which  shall  be  published  in  a  news- 
paper in  the  District,  which  shall  state  the  amount  of  capital 
and  of  the  proportion  actually  paid,  the  amount  of  debts,  and 
the  gross  earnings  for  the  year  ending  December  thirty-first 
then  next  previous,  together  with  their  expenses,  which  report 
shall  be  signed  by  the  president  and  a  majority  of  the  direct- 
ors or  trustees,  and  shall  be  verified  by  the  oath  of  the  presi- 
dent, secretary,  and  at  least  three  of  the  directors  or  trustees. 

202.  Tax  on  Gross  Earnings.  (Sec.  16.)  And  said  com- 
pany shall  pay  to  the  District  of  Columbia,  in  lieu  of  personal 
taxes  for  each  next  ensuing  year,  one  and  a  half  per  centum  of 
its  gross  earnings  for  the  preceding  year,  shown  by  said  veri- 
fied statement,  which  amount  shall  be  payable  to  the  collector 
of  taxes  at  the  times  and  in  the,  manner  that  other  taxes  are 
payable. 

203.  Liability  for  Failure  to  Report.  (Sec.  17.)  That 
if  any  company  fails  to  comply  with  the  provisions  of  the  pre 
ceding  section,  all  the  directors  or  trustees  of  such  company 
shall  be  jointly  and  severally  liable  for  the  debts  of  the  com- 
pany then  existing,  and  for  all  that  shall  be  contracted  before 
such  report  shall  be  made:  Provided,  That  in  case  of  failure 
of  the  company  in  any  year  to  comply  with  the  provisions  of 
section  sixteen  of  this  act,  and  any  of  the  directors  shall,  on 
or  before  January  fifteenth  of  such  year,  file  his  written  re- 
quest for  such  compliance  wath  the  secretary  of  the  company, 
the  Comptroller  of  the  Currency,  and  the  recorder  of  deeds 
of  the  District  bf  Columbia,  such  director  shall  be  exempt 
from  the  liability  prescribed  in  this  section. 

204.  Perjury  AND  Larceny.  (Sec.  18.)  That  any  willful 
false  swearing  in  regard  to  any  certificate  or  report  or  public 


G52  Appendix. 

notice  required  bv  the  provisions  of  this  act  shall  be  perjury, 
and  shall  be  punished  as  snch  according  to  the  laws  of  the 
District  of  Cohmibia.  And  any  misappropriation  of  any  of  the 
money  of  any  corporation  or  company  formed  under  this  act, 
or  any  money,  fnnds,  or  property  intrnsted  to  it,  shall  be  held 
to  be  larceny,  and  shall  be  punished  as  such  under  the  laws  of 
said  District. 

205.  Tkaxsfee  of  Stock.  (Sec.  19.)  That  the  stock  of 
such  company  shall  be  deemed  personal  estate,  and  shall  be 
transferable  only  on  the  books  of  such  company  in  such  manner 
as  shall  be  prescribed  by  the  by-laws  of  the  company;  but  no 
shares  shall  be  transferable  until  all  previous  calls  thereon  shall 
have  been  fully  paid,  and  the  said  stock  shall  not  be  taxable, 
in  the  hands  of  individual  owners,  the  tax  on  the  capital  stock, 
gross  earnings  of  the  company  hereinbefore  provided  being  in 
lieu  of  other  personal  tax.  All  certificates  of  the  stock  of  any 
company  organized  under  this  act  shall  show  upon  their  face 
the  par  value  of  each  share  and  the  amount  paid  thereon. 

200.  Liability  of  Stockholders.  (Sec.  20.)  That  all 
stockholders  of  every  company  incorporated  under  this  act, 
or  availing  itself  of  its  provisions  under  section  eleven,  shall 
be  severally  and  individually  liable  to  the  creditors  of  such 
company  to  an  amount  equal  to  and  in  addition  to  the  amount 
of  stock  held  by  them,  respectively,  for  all  debts  and  contracts 
made  by  such  company. 

207.  MoxEY  Payment  of  Capital  Stock  Required. 
(Sec.  21.)  That  nothing  but  money  shall  be  considered  as 
payment  of  any  part  of  the  capital  stock,  except  that  in  the 
case  of  any  company  now  doing  business  in  the  District  of 
Columbia  in  any  of  the  classes  herein  provided  for,  or  under 
any  act  of  Congress  or  by  virtue  of  the  laws  of  any  of  the 
States,  and  which  company  has  actually  received  full  payment 
in  money  of  at  least  fifty  per  centum  of  the  capital  stock 
required  by  this  act  and  which  company  desires  to  obtain  a 
charter  under  this  act,  all  the  assets  or  property  may  be-  re- 
ceived and  considered  as  money,  at  a  value  to  be  appraised 
and  fixed  by  the  Comptroller  of  the  Currency:  Provided,  That 
all  such  assets  and  property  are  also  transferred  to  and  are 
thereafter  owoied  by  the  company  organized  under  this  act. 

208.  j^uMBER  and  Election  of  Directors.  (Sec.  22.) 
That  the  stock,  property,  and  concerns  of  such  company  shall 


Banking.  653 

be  managed  by  not  less  than  nine  nor  more  than  thirty  direct- 
ors or  trustees,  who  shall,  respectively,  be  stockholders  and  at 
least  one-half  residents  and  citizens  of  the  District  of  Cohnnbia, 
and  shall,  except  the  first  year,  be  annually  elected  by  the 
stockholders  at  such  time  and  place  and  after  such  published 
notice  as  shall  be  determined  by  the  by-laws  of  the  company, 
and  said  directors  or  trustees  shall  hold  until  their  successors 
are  elected  and  qualified. 

209.  Appointment  of  Officeks.  (Sec.  23.)  That  there 
shall  be  a  president  of  the  company,  who  shall  be  a  director, 
also  a  secretary  and  a  treasurer,  all  of  whom  shall  be  chosen 
by  the  directors  or  trustees:  Provided,  That  only  one  of  the 
above-named  officers  shall  be  held  by  the  same  person  at  the 
same  time.  Subordinate  officers  may  be  appointed  by  the 
directors  or  trustees,  and  all  such  officers  may  be  required  to 
give  such  security  for  the  faithful  performance  of  the  duties 
of  their  office  as  the  directors  or  trustees  may  require. 

210.  By-eaws.  (Sec.  24.)  That  the  directors  or  trustees 
shall  have  power  to  make  such  by-laws  as  they  deem  proper 
for  the  management  or  disposal  of  the  stock  and  business  af- 
fairs of  such  company,  not  inconsistent  with  the  provisions  of 
this  act,  and  prescribing  the  duties  of  officers  and  servants  that 
may  be  employed,  for  the  appointment  of  all  officers,  and  for 
carrying  on  all  kinds  of  business  within  the  objects  and  pur- 
poses of  such  company. 

211.  DiEECTORs  Liable  for  Payment  of  Unearned  Divi- 
dends. (Sec.  25.)  That  if  the  directors  or  trustees  of  any 
company  shall  declare  or  pay  any  dividend,  the  payment  of 
which  would  render  it  insolvent,  or  which  would  create  a  debt 
against  such  company,  they  shall  be  jointly  and  severally  liable 
as  guarantors  for  all  of  the  debts  of  the  company  then  exist- 
ing, and  for  all  that  shall  be  thereafter  contracted,  while  they 
shall,  respectively,  remain  in  office. 

212.  Directors'  Liability  may  be  Avoided.  (Sec.  26.) 
That  if  any  of  the  directors  or  trustees  shall  object  to  declar- 
ing of  such  dividend  or  the  payment  of  the  same,  and  shall  at 
any  time  before  the  time  fixed  for  the  payment  thereof  file 
a  certificate  of  their  objection  in  writing  with  the  secretary  of 
the  company  and  with  the  recorder  of  deeds  of  the  District 


654  Appendix. 

they  shall  be  exempt  from  liability  prescribed  in  the  preceding 
section, 

213.  Responsibility  of  Directors  for  Excess  Liabili- 
ties. (Sec.  27.)  That  if  the  liabilities  of  any  company  shall 
at  any  time  exceed  the  amount  of  the  fair  cash  value  of  the 
assets,  the  directors  or  trustees  of  such  company  assenting 
thereto  shall  be  personally  and  individually  liable  for  such  ex- 
cess to  the  creditors  of  the  company  after  the  additional  lia- 
bility of  the  stockholders  has  been  enforced. 

214.  Trustee,  etc.,  not  Liable  on  Stock  Assessment. 
(Sec.  28.)  That  no  person  holding  stock  in  such  company  as 
executor,  administrator,  guardian,  or  trustee  shall  be  person- 
ally subject  to  any  liability  as  stockholder  of  such  company, 
but  the  estate  and  funds  in  the  hands  of  such  executor,  ad- 
ministrator, guardian,  or  trustee  shall  be  liable  in  like  manner 
and  to  the  same  extent  as  the  testator  or  intestate  or  the  ward 
or  the  person  interested  in  such  trust  fund  Avould  have  been 
if  he  had  been  living  and  competent  to  act  and  hold  the  stock 
in  his  own  name. 

215.  Increase  of  Capital.  (Sec.  29.)  That  any  cor- 
poration which  may  be  formed  under  this  chapter  may  increase 
its  capital  stock  by  complying  with  the  provisions  of  this  chap- 
ter to  any  amount  which  may  be  deemed  sufficient  and  proper 
for  the  purposes  of  the  corporation. 

216.  Certified  Copy  of  Incorporation  Certificate 
Competent  Evidence.  (Sec.  30.)  That  a  copy  of  any  certifi- 
cate of  incorporation  filed  in  pursuance  of  this  chapter,  certi- 
fied by  the  recorder  of  deeds  to  be  a  true  copy  and  the  whole 
of  such  certificate,  shall  be  received  in  all  courts  and  places  as 
presumptive  legal  evidence  of  the  facts  therein  stated. 

217.  No  Bond  or  Other  Security  Required  of  Trust 
Companies.  (Sec.  31.)  That  no  bond  or  other  collateral 
security,  except  as  hereinafter  stated,  shall  be  required  from 
any  trust  company  incorporated  under  this  act  for  or  in  respect 
to  any  trust,  nor  when  appointed  trustee,  guardian,  receiver, 
executor,  or  administrator,  with  or  without  the  will  annexed, 
committee  of  the  estate  of  a  lunatic  or  idiot,  or  other  fiduciary 
appointment;  but  the  capital  stock  subscribed  for  or  taken, 
and  all  property  owned  by  said  company  and  the  amount  for 
which  said  stockholders  shall  be  liable  in  excess  of  their  stock, 


Banking.  655 

shall  be  taken  and  considered  as  the  security  required  by  law 
for  the  faithful  performance  of  its  duties  and  shall  be  abso- 
lutely liable  in  case  of  any  default  whatever;  and  in  case  of 
the  insolvency  or  dissolution  of  said  company  the  debts  due 
from  the  said  company  as  trustee,  guardian,  receiver,  execu- 
tor, or  administrator,  committee  of  the  estate  of  lunatics,  idiots, 
or  any  other  fiduciary  appointment,  shall  have  a  preference. 

218.  DisTKiCT  Supreme  Court  Has  Jurisdiction  of 
Trust  Companies.  (Sec.  32.)  That  the  supreme  court  of 
the  District  of  Columbia,  or  any  justice  thereof,  shall  have 
power  to  make  orders  respecting  such  company  whenever  it 
shall  have  been  appointed  trustee,  guardian,  receiver,  executor, 
or  administrator,  with  or  without  the  will  annexed,  committee 
of  the  estate  of  a  lunatic,  idiot,  or  any  other  fiduciary,  and 
require  the  said  company  to  render  all  accounts  which  might 
lawfully  be  made  or  required  by  any  court  or  any  justice 
thereof  if  such  trustee,  guardian,  receiver,  executor,  adminis- 
trator, with  or  without  the  will  annexed,  committee  of  the  es- 
tate of  a  lunatic  or  idiot,  or  fiduciary  were  a  natural  person. 
And  said  court,  or  any  justice  thereof,  at  any  time,  on  applica- 
tion of  any  person  interested,  may  appoint  some  suitable  per- 
son to  examine  into  the  affairs  and  standing  of  such  companies, 
who  shall  make  a  full  report  thereof  to  the  court,  and  said 
court,  or  any  justice  thereof,  may  at  any  time,  in  its  discretion, 
require  of  said  company  a  bond  with  sureties  or  other  securi- 
ties for  the  faithful  performance  of  its  obligations,  and  such 
sureties  or  other  security  shall  be  liable  to  the  same  extent  and 
in  the  same  manner  as  if  given  or  pledged  by  a  natural  person. 

219.  All  Similar  District  Corporations  Subject  to 
This  Act.  (Sec.  33.)  That  no  corporation  or  company 
organized  by  virtue  of  the  laws  of  any  of  the  States  of  this 
Union  and  having  its  principal  place  of  business  within  the 
District  of  Columbia,  shall  carry  on,  in  the  District  of  Colum- 
bia, any  of  the  kinds  of  business  named  in  this  act  without 
strict  compliance  in  all  particulars  with  the  provisions  of  this 
act  for  the  government  of  such  corporations  formed  under  it, 
and  each  one  of  the  officers  of  the  corporation  or  company  so 
offending  shall  be  punished  by  fine  not  exceeding  one  thousand 
dollars,  or  imprisonment  in  some  State's  prison  not  exceeding 
one  year,  or  by  both  fine  and  imprisonment,  in  the  discretion 


656  Appen^dix. 

of  the  court.     This  section  shall  not  take  effect  till  six  months 
after  the  approval  of  this  act. 

220,  Pkovisiois's  foe  Amendment.  (Sec.  34.)  That 
Congress  may  at  anr  time  alter,  amend,  or  repeal  this  act,  but 
any  such  amendment  or  repeal  shall  not,  nor  shall  the  dissolu- 
tion of  any  company  formed  under  this  act,  take  away  or  im- 
pair any  remedy  given  against  such  corporation,  its  stock- 
holders or  officers,  for  any  liability  or  penalty  which  shall  have 
been  prcA'iously  incurred:  Provided,  That  the  courts  of  the 
District  of  Columbia  shall  not  have  power  to  appoint  any  trus- 
tee, trustees,  guardians,  receivers,  or  other  trustee  of  a  fund  or 
property  located  outside  of  the  District  of  Columbia,  or  be- 
longing to  a  corporation  or  person  having  a  legal  residence  or 
location  outside  of  said  District. 


GOVEENMENT   DEPOSITAEIES. 

221.  Designation  and  duties  of  pub-       224.  Penalty   for   misapplication    of 

lie  depositaries.  money-order  funds. 

222.  Deposit  and  withdra\val  of  pub-       225.  Penalty    for    unauthorized    de- 

lic  moneys.  posit  of  public  money. 

223.  Provisions  for  deposits  by  cer-       22G.  Penalty    for    unauthorized    re- 

tain postmasters.  ceipt  or  use  of  public  money. 

221.  Designation  and  Duties  of  Public  Depositaeies. 
(Sec.  5153.)  All  national  banking  associations,  designated 
for  that  purpose  by  the  Secretary  of  the  Treasury,  shall  be 
depositories  of  public  money,  except  receipts  from  customs, 
under  such  regulations  as  may  be  prescribed  by  the  Secretary; 
and  they  may  also  be  employed  as  financial  agents  of  the 
Government ;  and  they  shall  perform  all  such  reasonable  duties, 
as  depositaries  of  public  moneys  and  financial  agents  of  the 
Government,  as  may  be  required  of  them.  The  Secretary  of 
the  Treasury  shall  require  the  associations  thus  designated  to 
give  satisfactory  security,  by  the  deposit  of  United  States  bonds 
and  otherwise,  for  the  safe-keeping  and  prompt  payment  of 
the  public  money  deposited  with  them,  and  for  the  faithful 
performance  of  their  duties  as  financial  agents  of  the  Govern- 
ment. And  every  association  so  designated  as  receiver  or  de- 
positary of  the  public  money  shall  take  and  receive  at  par  all 
of  the  national  currency  bills,  by  whatever  association  issued, 


Baxkixg.  657 

•u-liicli  have  been  paid  into  the  Government  for  internal  rev- 
enue, oi:  for  loans  or  stocks. 

222.  Deposit  axd  Withdrawal  of  Public  Moxeys.  (Sec. 
3620.)  It  shall  be  the  duty  of  every  disbursing  officer  having 
any  public  money  intrusted  to  him  for  disbursement  to  deposit 
the  same  with  the  Treasurer  or  some  one  of  the  assistant 
treasurer  of  the  United  States,  and  to  draw  for  the  same  only 
as  it  may  be  required  for  payments  to  be  made  by  him  in 
pursuance  of  law;  and  draw  from  the  same  only  in  favor 
of  the  persons  to  whom  payment  is  made,  and  all  transfers 
from  the  Treasurer  of  the  United  States  to  a  disbursing  officer 
shall  be  by  draft  or  warrant  on  the  Treasurer  or  an  assistant 
tieasurer  of  the  United  States.  In  place,  however,  where 
there  is  no  Treasurer  or  assistant  treasurer,  the  Secretary  of 
the  Treasury  may,  when  he  deems  it  essential  to  the  public 
interest,  specially  authorize  in  writing  the  deposit  of  such  pub- 
lic money  in  any  other  pul)lic  depository,  or,  in  writing,  au- 
thorize the  same  to  be  kept  in  any  other  manner  and  under 
such  rules  and  regulations  as  he  may  deem  most  safe  and  ef- 
fectual to  facilitate  the  payments  to  public  creditors. 

223.  Provisioxs  for  Deposits  by  Certaix'  Postmasters. 
(Sec.  3847.)  Any  postmaster,  having  public  money  belong- 
ing to  the  Government,  at  an  office  "within  a  county  where  there 
are  no  designated  depositaries,  treasurers  of  mints,  or  Treas- 
urer or  assistant  treasurers  of  the  United  States,  may  deposit 
the  same,  at  his  own  risk  and  in  his  official  capacity,  in  any 
national  bank  in  the  town,  city,  or  county  where  the  said 
postmaster  resides;  but  no  authority  or  permission  is  or  shall 
be  given  for  the  demand  or  receipt  by  the  postmaster,  or  any 
other  person,  of  interest,  directly  or  indirectly,  on  any  deposit 
made  as  herein  described;  and  every  postmaster  who  make^ 
any  such  deposit  shall  report  quartely  to  the  Postmaster-Gen- 
eral the  name  of  the  bank  where  such  deposits  have  been  made, 
and  also  state  the  amount  which  may  stand  at  the  time  to  his 
credit. 

224.  Pexalty  for  Misapplicatiox^  of  Moxey-Order 
Pux'Ds.  (Sec.  1046.)  Every  postmaster,  assistant,  clerk,  or 
other  person  employed  in  or  connected  ^vith  the  business  or 
operations  of  any  money-order  office  who  converts  to  his  own 
use,  in  any  way  whatever,  or  loans,  or  deposits  in  anv  bank, 

42^         "^ 


658  Appendix. 

except  as  authorized  by  this  Title,  or  exchanges  for  other  fiinds^ 
anv  portion  of  the  money-order  funds,  shall  be  deemed  guilty 
of  embezzlement,  and  any  such  person,  as  well  as  every  other 
person  advising  or  participating  therein,  shall,  for  every  such 
offense,  be  imprisoned  for  not  less  than  six  months  nor  more 
than  ten  years,  and  be  fined  in  a  sum  equal  to  the  amount  em- 
bezzled; and  any  failure  to  pay  over  or  produce  any  money- 
order  funds  intrusted  to  such  person  shall  be  taken  to  be  prima 
facie  evidence  of  embezzlement ;  and  upon  the  trial  of  any  in- 
dictment against  any  person  for  such  embezzlement  it  shall  be 
prima  facie  evidence  of  a  balance  against  him  to  produce  a 
transcript  from  the  money-order  account  books  of  the  Sixth 
Auditor.  But  nothing  herein  contained  shall  be -construed  to 
prohibit  any  postmaster  depositing,  under  the  direction  of  the 
Postmaster-General,  in  a  national  bank  designated  by  the  Secre- 
tary of  the  Treasury  for  that  purpose,  to  his  own  credit  as  post- 
master, any  money-order  or  other  funds  in  his  charge,  nor 
prevent  his  negotiating  drafts  or  other  evidences  of  debt 
through  such  bank,  or  through  United  States  disbursing  officer^ 
or  otherwise,  when  instructed  or  required  to  do  so  by  the  Post- 
master-General for  the  purpose  of  remitting  surplus  money- 
order  funds  from  one  post-office  to  another,  to  be  used  in  pay- 
ment of  money  orders.  Disbursing  officers  of  the  United 
States  shall  issue,  under  regulations  to  be  prescribed  by  the 
Secretary  of  the  Treasury,  duplicates  of  lost  checks  drawn 
by  them  in  favor  of  any  postmaster  on  account  of  money-order 
or  other  public  funds  received  by  them  from  some  other  post- 
master. 

225.  Penalty  foe  Unauthoeized  Deposit  of  Public 
MoxEY.  (Sec.  5488.)  Every  disbursing  officer  of  the  United 
States  who  deposits  any  public  money  instrusted  to  him  in  any 
place  or  in  any  manner,  except  as  authorized  by  law,  or  con- 
verts to  his  o^vn  use  in  any  way  whatever,  or  loans  with  or 
without  interest,  or  for  any  purpose  not  prescribed  by  law 
withdraws  from  the  Treasurer  or  any  assistant  treasurer,  or 
any  authorized  depository,  or  for  any  pui-pose  not  prescribed 
by  law  transfers  or  applies  any  portion  of  the  public  money 
intrusted  to  him,  is,  in  every  such  act,  deemed  guilty  of  an 
embezzlement  of  the  money  so  deposited,  converted,  loaned, 
withdrawn,  transferred,  or  applied;  and  shall  be  punished  by 


Banking.  659 

imprisonment  with  hard  habor  for  a  term  not  less  than  one 
year  nor  more  than  ten  years,  or  by  a  fine  of  not  more  than  the 
amount  embezzled  or  less  than  one  thousand  dollars,  or  by 
both  such  fine  and  imprisonment. 

226.  Penalty  for  Uxal'tiiorized  Receipt  or  Use  of 
Public  Money.  (Sec.  5497.)  Every  banker,  broker,  or  other 
person  not  an  authorized  depositary  of  public  moneys,  who 
knowingly  receives  from  any  disbursing  ofiicer,  or  collector  of 
internal  revenue,  or  other  agent  of  the  United  States,  any 
public  money  on  deposit,  or  by  way  of  loan  or  accommodation, 
with  or  without  interest,  or  otherwise  than  in  payment  of  a 
debt  against  the  United  States,  or  who  uses,  transfers,  converts, 
appropriates,  or  applies  any  portion  of  the  public  money  for 
any  purpose  not  prescribed  by  law,  and  every  president, 
cashier,  teller,  director,  or  other  officer  of  any  bank  or  banking 
association,  Avho  violates  any  of  the  provisions  of  this  section,  is 
guilty  of  an  act  of  embezzlement  of  the  public  money  so  de- 
posited, loaned,  transferred,  used,  converted,  appropriated,  or 
applied,  and  shall  be  punished  as  prescribed  in  section  fifty-four 
hundred  and  eighty-eight. 

miscellaneous 

227.  Legal  Tender  and  Lawful  Money. —  The  following 
statement  concerning  the  legal-tender  properties  of  money  of 
the  L'nited  States  is  based  upon  United  States  Revised  Stat- 
utes, sections  3585,  3586,  3587,  3588,  3589,  and  3590,  and 
the  acts  amendatory  thereof  and  additional  thereto: 

Gold  coin,  standard  silver  dollars,  subsidiary  silver,  minor 
coins.  United  States  notes,  and  Treasury  notes  of  1890  have 
the  legal-tender  quality  as  follows:  Gold  coin  is  legal  tender 
for  its  nominal  value  when  not  below  the  limit  of  tolerance  in 
weight ;  when  below  that  limit  it  is  legal  tender  in  proportion 
to  its  weight ;  standard  silver  dollars  and  Treasury  notes  of 
1890  are  legal  tender  for  all  debts,  public  and  private,  except 
where  otherwise  expressly  stipulated  in  the  contract ;  sub- 
sidiary silver  is  legal  tender  to  the  extent  of  $10,  minor  coins 
to  the  extent  of  25  cents,  and  United  States  notes  for  all  debts, 
public  and  private,  except  duties  on  imports  and  interest  on  the 
public  debt.  Gold  certificates,  silver  certificates,  and  national - 
bank  notes  are  nonlegal-tender  money.     Both  kinds  of  certifi- 


C5G0  Appendix. 

cates,  liowever,  are  receivable  for  all  public  dues,  and  national- 
bank  notes  are  receivable  for  all  public  dues  except  duties  on 
imports,  and  may  be  paid  out  for  all  public  dues,  except  in- 
terest on  the  public  debt. 

The  term  "  lawful  money  "  is  imderstood  to  apply  to  every 
form  of  money  which  is  endowed  by  law  with  the  legal-tender 
quality.     (See  Opinions  of  Attorneys-General,  vol.  17,  p.  123.) 

228.  Miscellaneous  Acts. — Be  it  enacted  hy  the  Senate 
and  House  of  Representatives  of  the  United  States  of  America 
in  Congress  assemhled,  That  The  First  jSTational  Bank  of  An- 
napolis, now  located  in  the  city  of  Annaj)olis  and  State  of 
Maryland,  is  hereby  authorized  to  change  its  location  to  the 
city  of  Baltimore,  in  said  State.  Whenever  the  stockholders 
representing  three-fourths  of  the  capital  of  said  bank,  at  a 
meeting  called  for  that  purpose,  determine  to  make  such 
change,  the  president  and  cashier  shall  execute  a  certificate, 
under  the  corporate  seal  of  the  bank,  specifying  such  determi- 
nation, and  shall  cause  the  same  to  be  recorded  in  the  office  of 
the  Comptroller  of  the  Currency,  and  thereupon  such  change 
of  location  shall  be  effected,  and  the  operations  of  discount  and 
deposit  of  said  bank  shall  be  carried  on  in  the  city  of  Baltimore. 

Sec.  2.  That  nothing  in  this  act  contained  shall  be  so  cou' 
strued  as  in  any  manner  to  release  the  said  bank  from  any  lia- 
bility or  affect  any  action  or  proceeding  in  law  in  Avhich  the  said 
bank  may  be  a  party  or  interested.  And  Avhen  such  change 
shall  have  been  determined  upon,  as  aforesaid,  notice  thereof, 
and  of  such  change,  shall  be  published  in  two  weekly  papers 
in  the  city  of  Annapolis  not  less  than  four  weeks. 

Sec.  3.  That  whenever  the  location  of  said  bank  shall  have 
been  changed  from  the  city  of  Annapolis  to  the  city  of  Balti- 
more, in  accordance  with  the  first  section  of  this  act,  its  name 
shall  be  changed  to  The  Traders'  ]N"ational  Bank  of  Baltimore, 
if  the  board  of  directors  of  said  bank  shall  accept  the  new 
name  by  resolution  of  the  board,  and  cause  a  copy  of  such 
resolution,  duly  authenticated,  to  be  filed  with  the  Comptroller 
of  the  Currency. 

Sec.  4.  That  all  the  debts,  demands,  liabilities,  rights, 
privileges,  and  powers  of  The  First  National  Bank  of  An- 
napolis shall  devolve  upon  The  Traders'  National  Bank  of 
Baltimore  whenever  such  change  of  name  is  effected. 


Banking.  661 

Sec.  5.  That  this  act  shall  take  effect  and  be  in  force  from 
and  after  its  passage. 

Approved,  June  7,  1872. 

Acts  of  a  similar  nature  to  the  one  preceding  have  been 
enacted  by  Congress  for  the  follo"\\'ing  purposes: 

Authorizing  The  Manufacturers'  Xational  Bank  of  Xew 
York  to  change  its  location  from  the  city  of  Xew  York  to  the 
city  of  Brooklyn.     (Approved  July  27,  1868.) 

Authorizing  The  City  Xational  Bank  of  Xew  Orleans, 
Louisiana,  to  change  its  name  to  The  Gennania  Xational  Bank 
of  Xew  Orleans.     (Approved  March  1,  1869.) 

Authorizing  The  Second  Xational  Bank  of  Plattsburgh,  Xew 
York,  to  change  its  name  to  The  Vilas  Xational  Bank  of  Platts- 
burgh.    (Approved  March  1,  1869.) 

Authorizing  The  First  Xational  Bank  of  Delhi,  Xew  York, 
to  change  its  location  and  name  to  The  First  Xational  Bank  of 
Port  Jervis,  Xew  York.     (Approved  May  5,  1870.) 

Authorizing  The  First  Xational  Bank  of  Fort  Smith, 
Arkansas,  to  change  its  location  and  name  to  the  First  Xa- 
tional Bank  of  Camden,  Arkansas.     (Approved  Jidy  1,  1870.) 

Authorizing  the  Jersey  Shore  Xational  Bank,  Pennsylvania, 
to  change  its  location  and  name  to  The  Williamsport  Xational 
Bank,  Pennsylvania.     (Approved  December  22,  1870.) 

Authorizing  the  Worcester  County  Xational  Bank  of  Black- 
stone,  Massachusetts,  to  change  its  location  and  name  to  The 
Franklin  Xational  Bank,  Massachusetts.  (Approved  February 
9,  1871.) 

Authorizing  The  Farmers'  Xational  Bank  of  Fort  Edward, 
Xew  York,  to  change  its  location  and  name  to  The  Xorth 
Granville  Xational  Bank,  Xew  York.  (Approved  Februarv  18, 
1871.) 

Authorizing  The  Worthington  Xational  Bank  of  Coopers- 
town,  Xew  York,  to  change  its  location  and  name  to  The  First 
Xational  Bank  of  Oneonta,  Xew  York.  (Approved  February 
27,  1871.) 

Authorizing  The  Warren  Xational  Bank  of  South  Danvers, 
Massachusetts,  to  change  its  name  to  The  Warren  Xational 
Bank  of  Peabody,  Massachusetts.   (Approved  March  12,  1872.) 

Authorizing  the  First  Xational  Bank  of  Seneca,  Illinois,  to 


662  Appexdix. 

change  its  location  and  name  to  The  First  Xational  Bank  of 
Morris,  Illinois.  (Two  acts,  approved  April  5,  1872,  and 
June  18,  1874.) 

Authorizing  The  Railroad  National  Bank  of  Lowell,  Massa- 
chusetts, to  change  its  location  and  name  to  The  Railroad 
Xational  Bank  of  Boston,  Massachusetts.  (Approved  Mav  31, 
1872.) 

Authorizing  The  Xational  Bank  of  Lyons,  Michigan,  to 
change  its  location  and  name  to  The  Second  Xational  Bank  of 
Ionia,  Michigan.     (Approved  December  24,  1872.) 

Authorizing  The  East  Chester  Xational  Bank  of  Mount 
Yernon,  Xew  York,  to  change  its  location  and  name  to  The 
German  Xational  Bank  of  Evansville,  Indiana.  (Approved 
January  11,  1873.) 

Authorizing  The  First  Xational  Bank  of  Xewnan,  Georgia, 
to  change  its  location  and  name  to  The  Xational  Bank  of 
Commerce,  Atlanta,  Georgia.     (Approved  January  23,  1873.) 

Authorizing  The  First  Xational  Bank  of  "Watkins,  Xew 
York,  to  change  its  location  and  name  to  The  First  Xational 
Bank  of  Penn  Yan,  Xew  York.  (Approved  February  19, 
1873.) 

Authorizing  The  Xational  Bank  of  Springfield,  Missouri,  to 
change  its  name  to  The  First  Xational  Bank  of  Springfield, 
Missouri.     (Approved  March  3,  1873.) 

Authorizing  The  Kansas  Yalley  Xational  Bank  of  Topcka, 
Kansas,  to  change  its  name  to  The  First  Xational  Bank  of 
Topeka,  Kansas.     (Approved  March  3,  1873.) 

Authorizing  The  First  Xational  Bank  of  Saint  Anthony, 
Minnesota,  to  change  its  location  and  name  to  The  Merchants' 
Xational  Bank  of  Minneapolis,  Minnesota.  (Approved  Janu- 
ary 8,  1874.) 

Authorizing  The  Second  Xational  Bank  of  Havana,  Xew 
York,  to  change  its  name  to  The  Havana  Xational  Bank  of 
Havana,  Xew  York.     (Approved  January  9,  1874.) 

Authorizing  The  Passaic  County  Xational  Bank  of  Paterson, 
Xew  Jersey,  to  change  its  name  to  The  Second  Xational  Bank 
of  Paterson,  Xew  Jersey.     (Approved  April  15,  1874.) 

Authorizing  The  Citizens'  Xational  Bank  of  Hagerstown, 
Maryland,  to  change  its  location  and  name  to  The  Citizens' 


Banking.  663 

Kational  Bank  of  Washington  City,  District  of  Columbia. 
(Approved  May  1,  1874.) 

Authorizing  The  Irasburg  National  Bank  of  Orleans,  at 
Irasburg,  Vermont,  to  change  its  location  and  name  to  The 
Barton  National  Bank,  Vermont.     (Approved  June  3,  187-i.) 

Authorizing  The  Farmers'  ISTational  Bank  of  Greensburg, 
Pennsylvania,  to  change  its  location  and  name  to  The  Fifth 
National  Bank  of  Pittsburg,  Pennsylvania.  (Approved  June 
23,  1874.) 

Authorizing  The  Citizens'  National  Bank  of  Sanbornton, 
New  Hampshire,  to  change  its  name  to  The  Citizens'  National 
Bank  of  Tilton,  New  Hampshire.  (Approved  Februarv  19, 
1875.) 

Authorizing  The  Second  National  Bank  of  Jamestown,  New 
York,  to  change  its  name  to  The  City  National  Bank  of  James- 
town, New  York.     (Approved  March  3,  1875.) 

Authorizing  The  Second  National  Bank  of  Watkins,  New 
York,  to  change  its  name  to  The  Watkins  National  Bank,  New 
York.     (Approved  March  3,  1875.) 

Authorizing  The  Slater  National  Bank  of  North  Providence, 
Khode  Island,  to  change  its  name  to  The  Slater  National  Bank 
of  Pawtucket,  Rhode  Island.    (Approved  March  3,  1875.) 

Authorizing  The  Auburn  City  National  Bank  of  Auburn, 
New  York,  to  be  consolidated  with  The  First  National  Bank  of 
Auburn,  New  York.     (Approved  March  3,  1875.) 

Authorizing  The  Miners'  National  Bank  of  Braidwood, 
Illinois,  to  change  its  location  and  name  to  The  Commercial 
National  Bank  of  Wilmington,  Illinois!  (Approved  January 
31,  1878.) 

Authorizing  The  AVindham  National  Bank,  Windham,  Con- 
necticut, to  change  its  location  to  the  village  of  Willimantic, 
Connecticut.     (Approved  February  10,  1879.) 

Authorizing  The  National  Bank  of  Commerce  of  Cincinnati, 
Ohio,  to  change  its  name  to  The  National  Lafayette  and  Bank 
of  Commerce.     (Approved  April  29,  1879.) 

Authorizing  The  City  National  Bank  of  Manchester,  New 
Hampshire,  to  change  its  name  to  The  Merchants'  National 
Bank  of  ]\ranchester.     (Approved  June  11,  1880.) 

Authorizing  The  Blue  Hill  National  Bank  of  Dorchester, 
Massachusetts,  to  change  its  location  and  name  to  The  Blue 


06  J:  ArrEXDix. 

Hill  Xational  Bank  of  Milton,  Massacliiisetts,  (Approved 
January  13,  18S1.) 

Authorizing  The  First  Xational  Bank  of  Meriden,  AVest 
Meriden,  Connecticut,  to  change  its  name  to  The  First  Xational 
Bank  of  Meriden,  Connecticut.     (Approved  March  1,  1881.) 

Authorizing  The  National  Mechanics'  Banking  Association 
of  Xew  York,  Xew  York,  to  change  its  name  to  AVall  Street 
National  Bank.    (Approved  February  11,  1882.) 

Authorizing  The  Lancaster  National  Bank  of  Lancaster, 
Massachusetts,  to  change  its  location  and  name  to  The  Lancas- 
ter J^ational  Bank  of  Clinton,  Massachusetts.  (Approved 
February  25,  1882.) 

Authorizing  The  Xational  Bank  of  Kutztown,  Pennsylvania, 
to  change  its  location  and  name  to  The  Keystone  National  Bank 
of  Beading.  Pennsylvania.     (Approved  June  27,  1882.) 

Joint  resolution  authorizing  The  National  Bank  of  Winter- 
set,  lova,  to  change  its  name  to  The  First  National  Bank  of 
"Winterset,  Iowa.     (Approved  January  18,  1883.) 

Authorizing  The  Second  National  Bank  of  Xenia,  Ohio,  to 
increase  its  capital  stock.     (Approved  February  17,  1883.) 

Authorizing  The  First  National  Bank  of  West  Greenville, 
Pennsylvania,  to  change  its  name  to  The  First  National  Bank 
of  Greenville,  Pennsylvania.     (Approved  February  2G,  1883.) 

Authorizing  The  "West  Waterville  National  Bank  of  Oak- 
land, Maine,  to  change  its  title  to  The  Messalonskee  National 
Bank  of  Oakland,  Maine.     (Approved  April  15,  1884.) 

Authorizing  The  Hillsborough  National  Bank,  Ohio,  to 
change  its  name  to  The  First  National  Bank  of  Hillsborough, 
Ohio.     (Approved  December  18,  1884.) 

Authorizing  The  Slater  National  Bank  of  North  Providence, 
Rhode  Island,  to  change  its  name.  (Approved  January  8, 
1885.) 

Authorizing  The  First  National  Bank  of  Omaha  Nebraska, 
to  increase  its  capital  stock.     (Approved  January  10,  1885.) 

Authorizing  The  National  Bank  of  Bloomington,  Illinois,  to 
change  its  name  to  the  First  National  Bank  of  Bloomington, 
Illinois.     (Approved  January  27,  1885.) 

Authorizing  The  ^Manufacturers'  National  Bank  of  New 
York  to  change  its  name  to  The  Manufacturers'  National  Bank 
of  Brooklyn,  New  York.     (Approved  February  20,  1885.) 


Banking.  6Gr> 

Authorizing  The  Commercial  N^ational  Bank  of  Chicago, 
Illinois,  to  increase  its  capital  stock.  (Approved  February  28, 
1885.) 

Authorizing  The  First  ISTational  Bank  of  Larned,  Kansas,  to 
increase  its  capital  stock.     (Approved  March  3,  1885.) 

Authorizing  The  First  ISTational  Bank  of  Fort  Benton,  Mon- 
tana, to  change  its  location  and  name.  (Approved  December 
18,  1890.) 

Authorizing  The  National  Safe  Deposit  Company,  of  Wash- 
ington, to  change  its  title  to  "  The  ISTational  Safe  Deposit  Sav- 
ings and  Trust  Company  of  the  District  of  Columbia."  (Ap- 
proved February  18,  1892.) 

Authorizing  a  national  bank  at  Chicago,  Illinois,  to  establish 
a  branch  office  upon  the  grounds  of  the  World's  Columbian 
Exposition.     (Approved  May  12,  1892.) 

Authorizing  The  First  National  Bank  of  Sprague,  AVashing- 
ton,  to  change  its  location  and  name.  (Approved  March  20, 
1896.) 

Authorizing  the  Interstate  National  Bank,  of  Kansas  City, 
Kansas,  to  change  its  location.     (Approved  March  2,  1897.) 

Authorizing  any  bank  or  trust  company  located  in  the  State 
of  Missouri  to  conduct  a  banking  office  on  the  Louisiana  Expo- 
sition grounds  at  St.  Louis,  Mo.     (Approved  March  3,  1901.) 

CUKRENCY  ACT,  APPROVED  MARCH  14,  1900. 

An  Act  To  define  and  fix  the  standard  of  value,  to  maintain  the  parity 
of  all  forms  of  money  issued  or  coined  by  the  United  States,  to  refund 
the  public  debt,  and  for  other  purposes. 

Be  it  enacted  hy  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assemhled,  That 
the  dollar  consisting  of  twenty-five  and  eight-tenths  grains  of 
gold  nine-tenths  fine,  as  established  by  section  thirty-five  hun- 
dred and  eleven  of  the  Revised  Statutes  of  the  United  States, 
shall  be  the  standard  unit  of  value,  and  all  forms  of  money 
issued  or  coined  by  the  LTnited  States  shall  be  maintained  at  a 
parity  of  value  with  this  standard,  and  it  shall  be  the  duty  of 
the  Secretary  of  the  Treasury  to  maintain  such  parity. 

Sec.  2.  That  United  States  notes,  and  Treasury  notes  issued 
under  the  Act  of  July  fourteenth,  eighteen  hundred  and  ninety, 
when  presented  to  the  Treasury  for  redemption,  shall  be  re- 


CGG  Appendix. 

doemed  in  gold  coin  of  the  standard  fixed  in  the  first  section  of 
this  Act,  and  in  order  to  secure  the  prompt  and  certain  redemp- 
tion of  such  notes  as  herein  provided  it  shall  be  the  duty  of  the 
Secretary  of  the  Treasury  to  set  apart  in  the  Treasury  a  reserve 
fund  of  one  hundred  and  fifty  million  dollars  in  gold  coin  and 
bullion,  which  fund  shall  be  used  for  siicli  redemption  purposes 
only,  and  whenever  and  as  often  as  any  of  said  notes  shall  be 
redeemed  from  said  fund  it  shall  be  the  duty  of  the  Secretary 
of  the  Treasury  to  use  said  notes  so  redeemed  to  restore  and 
maintain  such  reserve  fund  in  the  manner  following,  to  wit : 
First,  by  exchanging  the  notes  so  redeemed  for  any  gold  coin 
in  the  general  fund  of  the  Treasury;  second,  by  accepting  de- 
posits of  gold  coin  at  the  Treasury  or  at  any  subtreasury  in 
exchange  for  the  United  States  notes  so  redeemed;  third,  by 
procuring  gold  coin  by  the  use  of  said  notes  in  accordance  with 
the  provisions  of  section  thirty-seven  hundred  of  the  Revised 
Statutes  of  the  United  States.  If  the  Secretary  of  the  Treasury 
is  unable  to  restore  and  maintain  the  gold  coin  in  the  reserve 
fund  by  the  foregoing  methods,  and  the  amount  of  such  gold 
C(dn  and  bullion  in  said  fund  shall  at  any  time  fall  below  one 
hundred  million  dollars,  then  it  shall  be  his  duty  to  restore  the 
same  to  the  maximum  sum  of  one  hundred  and  fifty  million 
dollars  by  borrowing  money  on  the  credit  of  the  United  States, 
and  for  the  debt  thus  incurred  to  issue  and  sell  coupon  or  regis- 
tered bonds  of  the  United  States,  in  such  form  as  he  may  pre- 
scribe, in  denominations  of  fifty  dollars  or  any  multiple  thereof, 
bearing  interest  at  the  rate  of  not  exceeding  three  per  centum 
per  annum,  payable  quarterly,  such  bonds  to  be  payable  at  the 
pleasure  of  the  United  States  after  one  year  from  the  date  of 
their  issue,  and  to  be  payable,  principal  and  interest,  in  gold  coin 
of  the  present  standard  value,  and  to  be  exempt  from  the  pay- 
ment of  all  taxes  or  duties  of  the  United  States,  as  well  as  from 
taxation  in  any  form  by  or  under  State,  municipal,  or  local  au- 
tliority;  and  the  gold  coin  received  from  the  sale  of  said  bonds 
shall  first  be  covered  into  the  general  fund  of  the  Treasury  and 
tljen  exchanged,  in  the  manner  hereinbefore  provided,  for  an 
equal  amount  of  the  notes  redeemed  and  held  for  exchange,  and 
the  Secretary  of  the  Treasury  may,  in  his  discretion,  use  said 
notes  in  exchange  for  gold,  or  to  purchase  or  redeem  any  bonds 


Baxkixg.  667 

oi  the  United  States,  or  for  any  other  lawfnl  purpose  the  public 
interests  mav  require,  except  that  they  shall  not  be  used  to  meet 
deficiencies  in  the  current  revenues.  That  United  States  notes 
when  redeemed  in  accordance  with  the  provisions  of  this  section 
shall  be  reissued,  but  shall  be  held  in  the  reserve  fund  until 
exchanged  for  gold,  as  herein  provided;  and  the  gold  coin  and 
bullion  in  the  reserve  fund,  together  with  the  redeemed  notes 
held  for  use  as  provided  in  this  section,  shall  at  no  time  exceed 
the  maximum  sum  of  one  hundred  and  fifty  million  dollars. 

Sec.  3.  That  nothing  contained  in  this  Act  shall  be  construed 
to  affect  the  legal-tender  quality  as  now  provided  by  law  of  the 
silver  dollar,  or  of  any  other  money  coined  or  issued  by  the 
United  States. 

Sec.  4.  That  there  be  established  in  the  Treasury  Depart- 
ment, as  a  part  of  the  oiRce  of  the  Treasurer  of  the  United 
States,  divisions  to  be  designated  and  known  as  the  division  of 
issue  and  the  division  of  redemption,  to  which  shall  be  assigned, 
respectively,  under  such  regulations  as  the  Secretary  of  the 
Treasury  may  approve,  all  records  and  accounts  relating  to  the 
issue  and  redemption  of  United  States  notes,  gold  certificates, 
silver  certificates,  and  currency  certificates.  There  shall  be 
transferred  from  the  accounts  of  the  general  fund  of  the  Treas- 
ury of  the  United  States,  and  taken  up  on  the  books  of  said 
divisions,  respectively,  accounts  relating  to  the  reserve  fund  for 
the  redemption  of  United  States  notes  and  Treasury  notes,  the 
gold  coin  held  against  outstanding  gold  certificates,  the  United 
States  notes  held  against  outstanding  currency  certificates,  and 
the  silver  dollars  held  against  outstanding  silver  certificates,  and 
each  of  the  funds  represented  by  these  accounts  shall  be  used 
for  the  redemption  of  the  notes  and  certificates  for  which  they 
are  respectively  pledged,  and  shall  be  used  for  no  other  purpose, 
the  same  being  held  as  trust  funds. 

Sec.  5.  That  it  shall  be  the  duty  of  the  Secretary  of  the 
Treasury,  as  fast  as  standard  silver  dollars  are  coined  under  the 
provisions  of  the  Acts  of  July  fourteenth,  eighteen  hundred 
and  ninety,  and  June  thirteenth,  eighteen  hundred  and  ninety- 
eight,  from  bullion  purchased  under  the  act  of  July  fourteenth, 
eighteen  hundred  and  ninety,  to  retire  and  cancel  an  equal 
amount  of  Treasury  notes  whenever  received  into  the  Treasury, 
either  by  exchange  in  accordance  with  the  provisions  of  thi>  Act 


G6S  Appendix. 

or  in  the  ordinary  course  of  business,  and  upon  the  cancellation 
of  Treasury  notes  silver  certificates  shall  be  issued  against  the 
silver  dollars  so  coined. 

Sec,  6.  That  the  Secretary  of  the  Treasury  is  hereby 
authorized  and  directed  to  receive  deposits  of  gold  coin  with 
the  Treasurer  or  any  assistant  treasurer  of  the  United  States 
in  sums  of  not  less  tli^  twenty  dollars,  and  to  issue  gold  cer- 
tificates therefor  in  denominations  of  not  less  than  twenty  dol- 
lars, and  the  coin  so  deposited  shall  be  retained  in  the  Treasury 
and  held  for  the  payment  of  such  certificates  on  demand,  and 
used  for  no  other  purpose.  Such  certificates  shall  be  receivable 
for  customs,  taxes,  and  all  public  dues,  and  when  so  received 
may  be  reissued,  and  when  held  by  any  national  banking  asso- 
ciation may  be  counted  as  a  part  of  its  lawful  reserve:  Provided, 
That  whenever  and  so  long  as  the  gold  coin  held  in  the  reserve 
fund  in  the  Treasury  for  the  redemption  of  United  States  notes 
and  Treasury  notes  shall  fall  and  remain  below  one  hundred 
million  dollars  the  authority  to  issue  certificates  as  herein  pro- 
vided shall  be  suspended:  A)id  provided  further.  That  when- 
ever and  so  long  as  the  aggregate  amount  of  United  States  notes 
and  silver  certificates  in  the  general  fund  of  the  Treasury  shall 
exceed  sixty  million  dollars  the  Secretary  of  the  Treasury  may, 
in  his  discretion,  suspend  the  issue  of  the  certificates  herein 
provided  for:  And  provided  furflier,  That  of  the  amount  of 
such  outstanding  certificates  one-fourth  at  least  shall  be  in  de- 
nominations of  fifty  dollars  or  less:  And  provided  further,  That 
the  Secretary  of  the  Treasury  may,  in  his  discretion,  issue  such 
certificates  in  denominations  of  ten  thousand  dollars,  payable 
to  order.  And  section  fifty-one  hundred  and  ninety-three  of 
the  Revised  Statutes  of  the  United  States  is  hereby  repealed. 

Sec.  7.  That  hereafter  silver  certificates  shall  be  issued  only 
of  denominations  of  ten  dollars  and  under,  except  that  not  ex- 
ceeding in  the  aggregate  ten  per  centum  of  the  total  volume 
of  said  certificates,  in  the  discretion  of  the  Secretary  of  the 
Treasury,  may  be  issued  in  denominations  of  twenty  dollars, 
fifty  dollars,  and  one  hundred  dollars ;  and  silver  certificates 
of  higher  denomination  than  ten  dollars,  except  as  herein  pro- 
vided, shall,  whenever  received  at  the  Treasury  or  redeemed, 
be  retired  and  canceled,  and  certificates  of  denominations  of 
ten  dollars  or  less  shall  be  substituted  therefor,  and  after  such 


Banking.  6G9 

.substitution,  in  whole  or  in  part,  a  like  volume  of  United 
States  notes  of  less  denomination  than  ten  dollars  shall  from 
time  to  time  be  retired  and  canceled,  and  notes  of  denomina- 
tions of  ten  dollars  and  upward  shall  be  reissued  in  substitution 
therefor,  with  like  qualities  and  restrictions  as  those  retired 
and  canceled. 

Sec.  S.  That  the  Secretary  of  the  Treasury  is  hereby 
authorized  to  use,  at  his  discretion,  any  silver  bullion  in  the 
Treasury  of  the  United  States  purchased  under  the  Act  of 
July  fourteenth,  eighteen  hundred  and  ninety,  for  coinage  into 
such  denominations  of  subsidiary  silver  coin  as  may  be  neces- 
sary to  meet  the  public  requirements  for  such  coin:  Provided, 
That  the  amount  of  subsidiary  silver  coin  outstanding  shall 
not  at  any  time  exceed  in  the  aggregate  one  hundred  millions  of 
dollars.  Whenever  any  silver  bullion  purchased  under  the  Act 
of  July  fourteenth,  eighteen  hundred  and  ninety,  shall  be  used 
in  the  coinage  of  subsidiary  silver  coin,  an  amount  of  Treasury 
notes  issued  under  said  Act  equal  to  the  cost  of  the  bullion 
contained  in  such  coin  shall  be  canceled  and  not  reissued. 

Sec.  0.  That  the  Secretary  of  the  Treasury  is  hereby  ^ 
authorized  and  directed  to  cause  all  worn  and  uncurrcnt  sub- 
sidiary silver  coin  of  the  United  States  now  in  the  Treasury, 
and  hereafter  received,  to  be  recoined,  and  to  reimburse  the 
Treasurer  of  the  United  States  for  the  difference  between  the 
nominal  or  face  value  of  such  coin  and  the  amount  the  same 
Avill  produce  in  new  coin  from  any  moneys  in  the  Treasury  not 
otherwise  appropriated. 

Sec.  10.  That  section  fifty-one  hundred  and  thirty-eight  of 
the  Revised  Statutes  is  hereby  amended  so  as  to  read  as  follows: 

"  Section  5138.  ISTo  association  shall  be  organized  with  a  less 
capital  than  one  hundred  thousand  dollars,  except  that  banks 
with  a  capital  of  not  less  than  fifty  thousand  dollars  may,  with 
the  approval  of  the  Sece^ary  of  the  Treasury,  be  organized  in 
any  place  the  population  of  wdiich  does  not  exceed  six  thou- 
sand inhabitants,  and  except  that  banks  with  a  capital  of  not 
less  than  twenty-five  thousand  dollars  may,  with  the  sanction 
of  the  Secretary  of  the  Treasury,  be  organized  in  any  place 
the  population  of  which  does  not  exceed  three  thousand  in- 
habitants.     Xo   association  shall  be   organized  in  a   city  the 


670  Appendix. 

population  of  which  exceeds  fifty  thousand  persons  with  a  capi- 
tal of  less  than  two  liundred  thousand  dollars." 

Sec.  11.  That  the  Secretary  of  the  Treasury  is  hereby 
authorized  to  receive  at  the  Treasury  any  of  the  outstanding 
bonds  of  the  United  States  bearing  interest  at  five  per  centum  per 
annum,  payable  February  first,  nineteen  hundred  and  four, 
and  any  bonds  of  the  United  States  bearing  interest  at  four 
per  centum  per  annum,  payable  July  first,  nineteen  hundred 
and  seven,  and  any  bonds  of  the  United  States  bearing  inter- 
est at  three  per  centum  per  annum,  payable  August  first, 
nineteen  hundred  and  eight,  and  to  issue  in  exchange  therefor 
an  equal  amount  of  coupon  or  registered  bonds  of  the  United 
States  in  such  form  as  he  may  prescribe,  in  denominations 
of  fifty  dollars  or  any  multiple  thereof,  bearing  interest  at 
the  rate  of  two  per  centum  per  annum,  payable  quarterly,  such 
bonds  to  be  payable  at  the  pleasure  of  the  United  States  after 
thirty  years  from  the  date  of  their  issue,  and  said  bonds  to  be 
payable,  principal  and  interest,  in  gold  coin  of  the  present 
standard  value,  and  to  be  exempt  from  the  payment  of  all 
taxes  or  duties  of  the  United  States,  as  well  as  from  taxation 
in  any  form  by  or  under  State,  municipal,  or  local  authority: 
Pi'ovided,  That  such  outstanding  bonds  may  be  received  in 
exchange  at  a  valuation  not  greater  than  their  present  worth 
to  }"ield  an  income  of  two  and  one-quarter  per  centum  per 
annum;  and  in  consideration  of  the  reduction  of  interest 
effected,  the  Secretary  of  the  Treasury  is  authorized  to  pay 
to  the  holders  of  the  outstanding  bonds  surrendered  for  ex- 
change, out  of  any  money  in  the  Treasury  not  otherwise  ap- 
propriated, a  sum  not  greater  than  the  difference  between  their 
present  worth,  computed  as  aforesaid,  and  their  par  value,  and 
the  payments  to  be  made  hereunder  shall  be  held  to  be  pay- 
ments on  account  of  the  sinking  fund  created  by  section  thirty- 
six  hundred  and  ninety-four  of  the  Revised  Statutes:  And 
provided  further,  That  the  two  per  centum  bonds  to  be  issued 
under  the  provisions  of  this  Act  shall  be  issued  at  not  less  than 
par,  and  they  shall  be  numbered  consecutively  in  the  order 
of  their  issue,  and  when  payment  is  made  the  last  numbers 
issued  shall  be  first  paid,  and  this  order  shall  be  followed  until 
all  the  bonds  are  paid,  and  whenever  any  of  the  outstanding 
bonds  are  called  for  payment  interest  thereon  shall  cease  three 


Banking.  671 

months  after  such  call;  and  there  is  hereby  appropriated  out 
of  any  money  in  the  Treasury  not  otherwise  appropriated,  to 
effect  the  exchanges  of  bonds  provided  for  in  this  Act,  a  simi 
not  exceeding  one-fifteenth  of  one  per  centum  of  the  face 
value  of  said  bonds,  to  pay  the  expense  of  preparing  and 
issuing  the  same  and  other  expenses  incident  thereto. 

Sec.  12.  That  upon  the  deposit  with  the  Treasurer  of  the 
United  States,  by  any  national  banking  association,  of  any 
bonds  of  the  United  States  in  the  manner  provided  by  exist- 
ing law,  such  association  shall  be  entitled  to  receive  from  the 
Comptroller  of  the  Currency  circulating  notes  in  blank,  reg- 
istered and  countersigned  as  provided  by  law,  equal  in  amount 
to  the  par  value  of  the  bonds  so  deposited;  and  any  national 
banking  association  now  having  bonds  on  deposit  for  the 
security  of  circulating  notes,  and  upon  which  an  amount  of 
circulating  notes  has  been  issued  less  than  the  par  value  of  tho 
b(  nds,  shall  be  entitled,  upon  due  application  to  the  Comp- 
troller of  the  Currency,  to  receive  additional  circulating  notes 
in  blank  to  an  amount  which  will  increase  the  circulatins;  notes 
held  by  such  association  to  the  par  value  of  the  bonds  deposited, 
such  additional  notes  to  be  held  and  treated  in  the  same  way 
as  circulating  notes  of  national  banking  associations  hereto- 
fore issued,  and  subject  to  all  the  provisions  of  law  affecting 
such  notes:  Provided,  That  nothing  herein  contained  shall  be 
construed  to  modify  or  repeal  the  provisions  of  section  fifty- 
one  hundred  and  sixty-seven  of  the  Revised  Statutes  of  the 
United  States,  authorizing  the  Comptroller  of  the  Currency 
to  require  additional  deposits  of  bonds  or  of  lawful  money  in 
case  the  market  value  of  the  bonds  held  to  secure  the  circulat- 
ing notes  shall  fall  below  the  par  value  of  the  circulating  notes 
outstanding  for  Avliich  such  bonds  may  be  deposited  as  security: 
Ayid  provided  furilier,  That  the  circulating  notes  furnished  to 
national  banking  associations  under  the  provisions  of  this  Act 
shall  be  of  the  denominations  prescribed  by  law,  except  that 
no  national  banking  association  shall,  after  the  passage  of  this 
Act,  be  entitled  to  receive  from  the  Comptroller  of  the  Cur- 
rency, or  to  issue  or  reissue  or  place  in  circulation,  more  than 
one-third  in  amount  of  its  circulating  notes  of  the  denomina- 
tion of  five  dollars:  And  provided  furfhcr.  That  the  total 
amount  of  such  notes  issued  to  any  such  association  may  equal 


€72  Appendix. 

at  any  time  but  shall  not  exceed  the  amount  at  such  time  of 
its  capital  stock  actually  paid  in:  And  provided  further,  That 
under  regulations  to  be  prescribed  by  the  Secretary  of  the 
Treasury  any  national  banking  association  may  substitute  the 
two  per  centum  bonds  issued  under  the  provisions  of  this  Act 
for  any  of  the  bonds  deposited  with  the  Treasurer  to  secure 
circulation  or  to  secure  deposits  of  public  money;  and  so  much 
of  an  Act  entitled  ''An  Act  to  enable  national  banking  associa- 
tions to  extend  their  corporate  existence,  and  for  other  pur- 
poses/' approved  July  twelfth,  eighteen  hundred  and  eighty- 
two,  as  prohibits  any  national  bank  which  makes  any  deposit 
of  lawful  money  in  order  to  withdraw  its  circulating  notes  from 
receiving  any  increase  of  its  circulation  for  the  period  of  six 
months  from  the  time  it  made  such  deposit  of  lawful  money 
for  the  purpose  aforesaid,  is  hereby  repealed,  and  all  other 
Acts  or  parts  of  Acts  inconsistent  with  the  provisions  of  thi^; 
section  are  hereby  repealed. 

Sec.  13.  That  every  national  banking  association  having  on 
deposit,  as  pro\nded  by  law,  bonds  of  the  United  States  bearing 
interest  at  the  rate  of  two  per  centum  per  annum,  issued  under 
the  provisions  of  this  Act,  to  secure  its  circulating  notes,  shall 
pay  to  the  Treasurer  of  the  United  States,  in  the  months  of 
January  and  July,  a  tax  of  one-fourth  of  one  per  centum  each 
half  year  upon  the  average  amount  of  such  of  its  notes  in 
circulation  as  are  based  upon  the  deposit  of  said  two  per 
centum  bonds;  and  such  taxes  shall  be  in  lieu  of  existing  taxes 
on  its  notes  in  circulation  imposed  by  section  fifty-two  hun- 
dred and  fourteen  of  the  Revised  Statutes, 

Sec.  14.  That  the  provisions  of  this  Act  are  not  intended 
to  preclude  the  accomplishment  of  international  bimetallism 
whenever  conditions  shall  make  it  expedient  and  practicable  to 
secure  the  same  by  concurrent  action  of  the  leading  commercial 
nations  of  the  world  and  at  a  ratio  which  shall  insure  perman- 
ence of  relative  value  between  gold  and  silver. 

FAILED  XATIO^^AL  BAXKS,  ETC. 

Provisos,  act  April  28,  1902. 
Provided,  That  for  the  fiscal  year  of  nineteen  hundred  and 
two  and  thereafter,  a  full  and  complete  list  of  all  officers,  agents, 
€]erks,  and  other  employees  of  the  office  of  the  Comptroller  of 


Banking.  673 

the  Currency,  including  bank  examiners,  receivers  and  attorneys 
for  receivers,  and  clerks  employed  by  such  examiners  and  re- 
ceivers, or  any  person  connected  with  the  work  of  said  office  in 
Washington  or  elsewhere,  whose  salary  or  compensation  is  paid 
from  the  Treasury  of  the  United  States  or  assessed  against  or 
collected  from  existing  or  failed  banks  under  their  supervision 
or  control,  shall  be  transmitted  to  the  Secretaiy  of  the  Interior 
in  accordance  with  the  provisions  of  an  Act  of  CongTCSs  ap- 
proved Januar}^  twelfth,  eighteen  hundred  and  eighty-five,  re- 
lating to  the  Official  Register:  A7'id  provided  further.  That  the 
Comptroller  of  the  Currency  is  hereby  directed  to  include  in  his 
Annual  Report  to  the  Speaker  of  the  House  of  Representatives, 
expenses  incurred  during  each  year,  in  liquidation  of  each  failed 
national  bank  separately. 


IXSTRUCTIOXS  AXD  SUGGESTIOXS  RELATIXG  TO 
THE  ORGANIZATION  OF  NATIONAL  BANKS. 

[XoTE. —  The  following  are  forms  and  suggestions  prepared  and  recom- 
mended by  the  Comptroller  of  the  Currency,  in  the  organization  and 
formation  of  National  Banks.] 

ORGANIZATION, 

The  preliminary  proceeding  in  connection  with  the  organ- 
ization of  a  national  bank  is  to  make  an  application  to  the 
Comptroller  of  the  Currency,  stating  the  desired  title,  the 
location,  and  the  proposed  capital.  The  application  must  be 
signed  by  at  least  five  persons  who  contemplate  being  stock- 
holders of  the  association.  (Section  5133,  United  States 
Revised  Statutes.)  The  application  should  contain  a  state- 
ment as  to  the  business  and  financial  standing  of  the  signers 
and  an  indorsement  by  a  United  States  Senator,  Representa- 
tive, judge  of  court,  or  other  prominent  public  official,  per- 
sonally acquainted  with  the  applicants,  in  relation  to  their 
character  and  financial  responsibility. 

The  following  is  a  copy  of  the  formal  application  for  res- 
ervation of  title  and  authority  to  organize  a  national  bank. 
Copies  of  this  form  ^\all  be  furnished  on  request. 

APPLICATIOX   TO   ORGANIZE   A   XATIOXAL  BATTK. 

The  name  of  the  place  should  form  a  part  of  the  title,  thus  "  The  First 

National   Bank  of  A ,"   but  the  name  of  the  State  should  not  be 

included. 

43 


G74 


Appendix. 


Consideration  will  not  be  given  to  an  application  for  a  title  including  the 
Avord  "  First,"  if  a  national  bank  exists  or  has  existed  at  the  given  locality; 
nor  to  an  application  for  a  title  identical  with  that  of  a  national  bark 
heretofore  in  existence,  nor  to  one  materially  similar  to  that  of  a  national, 
State,  or  other  bank  existing  in  the  place. 

,  190—. 

To   THE    COMPTKOLLEB   OF   THE   CURRENCY, 

Washington. 

Sir  :  Notice  is  hereby  given  that  we,  the  undersigned,  being  natural 
persons,  and  of  lawful  age,  intend,  with  others,  to  organize  a  national  bank- 
ing association,  under  the  title  of  "  The ,"  to  be  located  at 

county  of ,  State  of  ,  with  capital  of  $ , 


to  succeed  the 


bank  of 


Population 


We  request  that  the  title  be  reserved  for  a  period  of  sixty  days  and  the 
necessary  organization  jjapers  and  instructions  sent  to  ,  at 


(This   application    must  be  signed  by   at   least   five   prospective   share- 
holders, and  indorsed  as  indicated.) 


Signatures  of  Applicants. 


Residences. 


Business. 


Financial  Strength 
in  Figures. 


The  signers  of  this  application  are  known  to  me  to  be  reputable  citizens, 
and  the  foregoing  information  in  reference  to  their  business  and  financial 
standing  is,  in  my  opinion,  correct. 


If  the  application  receives  the  approval  of  the  Comptroller, 
he  will  furnish  all  necessary  blank  forms  for  completing  the 
organization,  "vvith  instructions  for  their  proper  execution,  and 
the  title  applied  for  will  be  reserved  for  a  period  of  sixty  days, 
during  which  time  it  is  expected  that  the  organization  of  the 
bank  will  be  completed. 

CAPITAL    REQUIRED. 

National  banks  with  a  mmimum  capital  of  $25,000  may  be 
organized  in  places  the  population  of  which  does  not  exceed 
3,000;  with  minimum  capital  of  $50,000  in  places  the  popula- 
tion of  which  does  not  exceed  6,000;  with  minimum  capital 
of  $100,000  in  places  the  population  of  which  does  not  exceed 
50,000,  and  \vith  minimum  capital  of  $200,000  in  places  with 
population  of  over  50,000. 

^Signature  of  member  of  Congress,  judge  of  court,  or  other  prominent 
official. 


Baistking.  675 

stock  subsceiption  list. 

The  law  does  not  provide  for  the  filing  with  the  Comptroller 
of  the  Currency  of  a  list  of  subscribers  to  the  capital  stock  of 
a  national  banking  association,  nor  are  blanks  for  that  purpose 
furnished  by  this  office.  When,  however,  the  proposed  in- 
corporators have  received  advice  of  the  approval  of  their  ap- 
plication to  organize,  there  may  be  properly  draAvn  up  a  sub- 
scription contract,  and  signatures  of  the  prospective  stock- 
holders obtained.  The  law  only  requires  that  the  capital  stock 
of  a  national  bank  shall  be  paid  in  cash  at  par,  and  permits  it 
to  be  paid  in  installments.  There  would  appear,  however,  to 
be  no  objection  to  the  incorporation  in  the  subscription  con- 
tract of  a  provision  that  the  entire  amount  due  on  each  share 
shall  be  paid  at  the  call  of  the  directors;  also,  that  a  premium 
shall  be  j^aid  for  the  stock  to  be  credited  to  the  surplus  fund. 
Where  the  stock  is  sold  at  a  premium  of  20  per  cent,  a  bank 
is  enabled  at  the  first  dividend  period  to  distribute  the  net 
earnings  without  the  carrying  of  any  portion  thereof  to  the 
surplus  fund  as  provided  by  section  5199,  United  States  Re- 
vised Statutes. 

In  case  subscriptions  to  stock  are  paid  in  installments, 
temporary  certificates  should  be  issued,  and  the  amount  of 
each  payment  credited  thereon.  When  all  installments  have 
been  paid,  the  temporary  certificates  should  be  surrendered 
and  canceled  and  certificates  of  stock  issued  in  lieu  thereof. 

The  following  is  a  form  of  temporary  certificate  in  general 

use: 

Temporary  Certificate. 

No. .  Shares. 

This  is  to  certify  that  is  entitled  to  shares  of  the  capital 

stock   of   the   National    Bank   of   .   capital   $ ,   and   that 

upon  payment  of  all  installments,  amounting  to   $ ,  and  surrender  of 

this  temporary  certificate,  a  certificate  of  stock  will  be  issued. 

Witness  the  seal  and  the  signatures  of  the  president  and  cashier  of  the 
bank. 

Dated  ,  190—. 

The  National  Bank  of  . 

By 


Cashier.  President. 

Payments  on  Account  of  Capital. 

First  installment,  per  cent,  amounting  to  $ ,  paid  ,  190 — . 

.Second         "             "                 "                    "       190—. 

Third           "             "                 "                    "       190—. 

Fourth         "             "                 "                     "       190—. 

Fifth             "              "                  "                     "       190—. 

Sixth           "             "                 "                    "       190—. 


676  Appendix. 

Assignment. 

•     For  value  received  I  hereby  transfer  and  assign  to  — this  temporary 

certificate,  and  liereby  appoint  and  constitute  my  true  and 

lawful  attorney  to  transfer  said  certificate,  with  full  power  of  substitution 
in  the  premises. 

Dated  at  ,  this  day  of  ,  190—. 

Witness: .  . 

The  persons  organizing  an  association  must  enter  into 
articles  of  association,  as  required  bv  section  5133.  (The 
sections  referred  to  herein  are  of  the  United  States  Revised 
Statutes.)  The  following  is  submitted  as  a  general  form  for 
these  articles: 

Articles  of  Associatiox. 

(Executed  in  Duplicate.) 

For  the  purpose  of  organizing  an  association  to  carry  on  the  business 
of  banking,  under  the  laws  of  the  United  States,  tlie  imdersigned  subscrib- 
ers for  the  stock  of  the  association  hereinafter  named  do  enter  into  the 
following  articles  of  association : 

First.  The  title  of  this  association  shall  be  "  The ." 

Second.  The  place  where  its  banking  house  or  office  shall  be  located,  and 
its  operations  of  discount  and  deposit  carried  on,  and  its  general  business 
conducted,  shall  be  . 

Third.  The  board  of  directors  shall  consist  of  shareholders.     The 

first  meeting  of  the  shareholders  for  the  election  of  directors  shall  be  held 

at on  the ,  or  at  such  other  place  and  time  as  a  majority  of 

the   undersigned   shareholders   may   direct. 

Fourth.  The  regular  annual  meeting  of  the  shareholders  for  the  elec- 
tion of  directors  shall  be  held  at  the  banking  house  of  this  association 
on  the  second  Tuesday  of  January  of  each  year ;  but  if  no  election  shall 
be  held  on  that  day,  it  may  be  held  on  any  other  day,  according  to  the 
provisions  of  section  5149  of  the  Revised  Statutes  of  the  United  States, 
and  all  elections  shall  be  held  according  to  such  regulations  as  may  be 
prescribed  by  the  board  of  directors,  not  inconsistent  with  the  provisions  of 
the  national-banking   law,   and   of   these  articles. 

Fifth.  The  capital  of  this  association  shall  be  thousand  dollars, 

divided  into  shares  of  $100  each;  but  the  capital  may,  with  the  approval 
of  the  Comptroller  of  the  Currency,  be  increased  at  any  time  by  share- 
holders owning  two-thirds  of  the  stock,  according  to  the  provisions  of  an 
act  of  Congress  approved  May  1,  1886;  and  in  case  of  the  increase  of  the 
capital  of  the  association,  each  shareholder  shall  have  the  privilege  of 
subscribing  for  such  number  of  shares  of  the  proposed  increase  of  the  capi- 
tal stock  as  he  may  be  entitled  to  according  to  the  number  of  shares  owned 
by  him  before  the  stock  is  increased. 

Sixth.  The  board  of  directors,  a  majority  of  whom  shall  be  a  quorum 
to  do  business,  shall  elect  one  of  its  members  president  of  this  association, 
who  shall  hold  his  office  (unless  he  shall  be  disqualified  or  be  sooner  re- 
moved by  a  two-thirds  vote  of  all  the  members  of  the  board)  for  the  term 
for  which  lie  was  elected  a  director.  The  directors  shall  have  power  to 
elect  a  vice-president,  who  shall  also  be  a  member  of  the  board  of  directors, 
and  who  shall  be  authorized,  in  the  absence  or  inability  of  the  president 
from  any  cause,  to  perform  all  acts  and  duties  pertaining  to  the  office  of 
president,  except  sucii  as  the  president  only  is  authorized  by  law  to  per- 
form, and  to  elect  or  appoint  a  cashier,  and  such  otlier  officers  and  clerks 
as  may  be  required  to  transact  the  business  of  the  association ;  to  fix  the 
salaries  to  be  paid  to  them,  and  continue  them  in  office,  or  to  dismiss  them 


Banking.  677 

as,  in  the  opinion  of  a  majority  of  the  board,  the  interests  of  the  associa- 
tion may  demand. 

The  directors  shall  have  power  to  define  the  duties  of  the  officers  and 
clerks  of  the  association,  to  require  bonds  from  them,  and  to  fix  the  pen- 
alty thereof ;  to  regulate  the  manner  in  which  elections  of  directors  shall 
be  held,  and  to  appoint  judges  of  the  elections;  to  make  all  by-law^s  that 
it  may  be  proper  for  them  to  make,  not  inconsistent  with  law,  for  the  gen- 
eral regulation  of  the  business  of  the  association  and  the  management  of 
its  affaii's,  and  generally  to  do  and  perform  all  acts  that  it  may  be  legal 
for  a  board  of  directors  to  do  and  perform  under  the  Revised  Statutes 
aforesaid. 

Seventh.  This  association  shall  continue  for  the  period  of  twenty  years 
from  the  date  of  the  execution  of  its  organization  certificate,  unless  sooner 
placed  in  voluntary  liquidation  by  the  act  of  its  shareholders  owning  at 
least  two-thirds  of  its  stock,  or  otherwise  dissolved  by  authority  of  law. 

Eighth.  These  articles  of  association  may  be  changed  or  amended  at  any 
time  by  shareholders  owning  a  majority  of  the  stock  of  the  association, 
in  any  manner  not  inconsistent  with  law;  and  the  board  of  directors,  or 
any  three  shareholders,  maj'  call  a  meeting  of  the  shareholders  for  this 
or  any  other  purpose,  not  inconsistent  with  law,  by  publishing  notice 
thereof  for  thirty  days  in  a  newspaper  published  in  the  town,  city,  or 
county  where  the  bank  is  located,  or  by  mailing  to  each  shareholder  notice 
in  writing  thirty  days  before  the  time  fixed  for  the  meeting. 

In  witness  whereof  we  have  hereunto  set  our  hands  this  dav  of 


Note. —  Five  persons  are  required  to  sign ;  more  may  sign,  but  this  num- 
ber is  sufficient.  » 

Instead  of  providing,  in  the  third  article,  for  the  election 
of  the  first  board  of  directors^  the  names  of  the  directors  may 
be  given  in  the  article.  When  the  stockholders  are  agreed 
as  to  the  persons  who  are  to  constitnte  the  directors,  this 
is  more  convenient  that  to  hold  an  election.  In  this  event 
the  third  article  shonld  read  as  follows: 

The  board  of  directors  shall  consist  of  shareholders,  and  the  fol- 
lowing persons  [here  insert  their  names]  are  hereby  appointed  directors 
of  this  association,  to  hold  their  offices  as  such  imtil  the  regular  annual 
election  takes  place,  pursuant  to  the  fourth  article  of  these  articles  of 
association,  and  until  their  successors  are  chosen  and  have  qualified. 

The  third  article,  if  desired,  may  also  be  made  to  provide 
for  Avhat  is  termed  a  sliding  scale  instead  of  a  fixed  nnmber 
or  directors ;  in  other  words,  a  minimum  and  maximum  nnmber 
of  directors,  in  which  event  the  article  should  read  as  follows : 

The  board  of  directors  shall  consist  of  not  less  than  [insert  minimum 
number]  nor  more  than  [insert  maximum  number]  shareholders.  The 
number  of  directors  elected  at  each  annual  meeting  shall  constitute  the 
board  for  the  year,  all  vacancies  to  be  filled  in  accordance  with  the  provi- 
sions of  section  5148. 


678  .       Appendix. 

The  persons  uniting  to  organize  a  national  bank  must  be 
natural  persons  —  that  is,  individuals  who  can  legally  hold 
and  control  property  in  their  individual  right  —  and  not  cor- 
porations, firms,  or  associations  of  any  character. 

The  proportion  of  capital  required  for  organization  (that  is, 
one-half)  must  be  paid  in  money,  and  each  subsequent  install- 
ment must  be  so  paid  until  all  the  capital  is  paid  in.  Promis- 
sory notes  or  other  evidences  of  debt  can  not  be  taken  in 
payment  for  subscriptions  to  capital  stock. 

Five  persons  at  least  are  required  to  sign  the  articles  of 
association^  and  those  who  sign  the  articles"  must  also  sign  the 
organization  certificate.  The  certificate  should  be  executed 
at  the  same  time  or  subsequent  to  execution  of  the  articles  of 
association. 

The  articles  of  association,  organization  certificate,  and  cer- 
tificate of  payment  of  capital  must  be  executed  in  duplicate, 
and  one  copy  of  each  filed  in  the  office  of  the  Comptroller  of 
the  Currency  and  the  other  retained  by  the  bank. 

Okgaxizatiox  Certificate. 

We,  the  undersigned,  whose  names  are  specified  in  article  fourth  of  this 
certificate,  having  associated  ourselves  for  the  purpose  of  organizing  an 
association  for  carrying  on  the  business  of  banking,  under  the  laws  of  the 
United  States,  do  make  and  execute  the  following  organization  certificate: 

First.  Tlie  title  of  the  association  sail  be  ''  The ." 

Second.  The  said   association  shall  be  located  in  the  of  , 

county  of ,  and  State  of  ,  where  its  operations  of  dicount  and 

deposits  are  to  be  carried  on. 

Third.  The    capital    stock    of    this    association    shall    be   dollars 

($ ),  and  the  same  shall  be  divided  into  shares  of  one  hun- 
dred dollars  each. 

Fourth.  The  name  and  the  residence  of  each  shareholder  of  this  asso- 
ciation, with  the  number  of  shares  held,  are  as  follows: 


Note. —  Tlae  names,  etc.,  of  all  the  shareholders  must  be  given. 

Fifth.  This  certificate  is  made  in  order  that  we  may  avail  ourselves  of 
the  advantages  of  the  aforesaid  laws  of  the  United  States. 

In   witness   whereof   we   have   hereunto   set  our   hands  this   day 

of . 


Baistking.  679 

Note. —  Those  that  have  signed  the  articles  of  association  are  required 
to  sign  this   certificate,   and   they  must  do  so  in  their  own  handwriting. 
They  must  also  make  acknowledgment. 
State  of , 


County  of 


Before  the  undersigned,  a of ,  personally  appeared  , 

to  me  w'ell  known,  who  severally  acknowledged  that    they    executed    the 
foregoing  certificate  for  the  purposes  therein  mentioned. 

Witness  my  hand  and  seal  of  office  this day  of  . 

[OFFICIAI.  SEAL  OF  OFFTCEK-T 

The  association  will  have  succession  for  a  period  of  twenty 
years  from  the  date  of  execution  of  the  organization  certifi- 
cate, and  not  from  the  date  of  the  certificate  of  the  Comp- 
troller of  the  Currency  authorizing  the  bank  to  commence 
business.     (See  Sec.  5136.) 

The  name,  etc.,  of  each  stock  subscriber,  but  not  necessarily 
his  signature,  is  required  in  the  fourth  subdivision.  Each 
person  who  signs  the  articles  of  the  association  is  also  re- 
quired to  sign  the  organization  certificate. 

The  organization  certificate  must  be  acknowledged  before 
a  judge  of  a  court  of  record  or  a  notary  public  having  a  seal, 
and  all  the  shareholders  who  sign  in  the  fifth  subdivision  must 
make  proper  acknowledgment  of  the  execution  of  the 
certificate. 

Inasmuch  as  the  laws  of  the  several  States  differ  as  to  the 
rights  of  married  women  in  regard  to  their  separate  estates 
and  property,  and  as  to  the  effects  of  covenants  and  agree- 
ments made  by  them,  and  also  as  to  the  forms  of  acknowledg- 
ment of  instruments  executed  by  them,  any  organization 
papers  bearing  the  signatures  of  women  must  be  accompanied 
by  evidence  that  under  the  laws  of  the  State  they  have  the 
power  to  be  parties  to  the  organization. 

When  the  organization  of  a  bank  is  effected  and  stock  cer- 
tificates are  paid  for  in  full  and  issued,  they  must  be  in  the 
names  of  shareholders  and  for  the  numbers  of  shares  of  stock 
listed  in  the  organization  certificate,  transfers  to  be  made  in 
the  regular  manner  in  the  case  of  any  stock  which  changes 
ownership. 

The  foregoing  instructions  apply  solely  to  new  organiza- 
tions.    If  it  be  desired  to  convert,   under  the  provisions  of 


680  Appexdix. 

section  5154,  a  bank  existing  under  State  laws,  tlie  method  of 
procedure  and  the  forms  necessary  will  be  found  elsewhere. 

DIKECTOES. 

After  the  execution  of  the  organization  certificate,  if  the 
directors  are  not  designated  in  the  articles  of  association,  the 
shareholders  should  proceed  to  elect  directors  as  provided  in 
section  5145.  Each  director  must,  after  his  election  or  ap- 
pointment (but  not  prior  to  the  date  of  execution  of  the  articles 
and  organization  certificate);,  take  an  oath  of  the  following 
form : 

OATH  Of  DIRECTOR. 

State  of  — ^ 

County  of ,  ss : 

L  the  undersigned,  director  of  The  ,  of  ,  in  the  State  of 

,  being  a  citizen  of  the  United  States,  and  resident  of  the  State  of 

-,  do  solemnly  swear  that  I  will,  so  far  as  the  duty  devolves  on  me, 


diligently  and  honestly  administer  the  affairs  of  said  association;  that  I 
Avill  not  knowingly  violate,  or  willingly  permit  to  be  violated,  any  of  the 
provisions  of  the  statutes  of  the  United  States  under  which  this  associa- 
tion has  been  organized;  and  that  I  am  the  owner,  in  good  faith,  and  in 
my  ovm  right,  of  the  number  of  shares  of  stock  required  by  said  statutes, 
subscribed  by  me  or  standing  in  my  name  on  the  books  of  the  said  asso- 
ciation; and' that  the  same  is  not  hypothecated,  or  in  any  way  pledged  as 
security  for  any  loan  or  debt. 

Place  of  residence,  . 


Subscribed  and  sworn  to  this  day  of  ,  before  the  under- 
signed, a  in  and  for  said  county. 

[official  seal  of  officer.]  , 

Notary  Public. 

Note. —  Each  director  when  elected  must  take  the  oath  of  office,  and, 
under  section  5147,  U.  S.  R.  S.,  it  should  be  transmitted  to  the  Comp- 
troller of  the  Currency  immediately  after  the  election.  If  the  officer  ad- 
ministering the  oath  has  no  seal,  a  certificate  of  the  proper  State,  county, 
or  court  official  to  the  efi'ect  that  such  officer  is  authorized  to  take  acknowl- 
edgments must  be  attached. 

OATH    OF   directors. 

State  of  , 


County  of  ,  ss: 

We,  the  undersigned,  directors  of  "  The  ,"  of  ,  in  the  State 

of ,  being  citizens  of  the  United  States  and  residents  of  the  State  of 

,   do,  each   for  himself,  and  not  one  for  the  other,  solemnly  swear 

that  we  will  severally,  so  far  as  the  duty  devolves  on  us,  diligently  and 
honestly  administer  the  aflfairs  of  said  association;  and  that  we  will  not 
knowingly  violate,  or  willingly  permit  to  be  violated,  any  of  the  provisions 
of  the  statutes  of  the  United  States  under  which  said  association  has 
been  organized ;  and  each  for  himself  does  solemnly  swear  that  he  is  the 
owner   in  good   faith,  and  in  his  own  right,  of  the  number  of  shares  of 


Banking.  681 

stock  required  by  said  statutes,  subscribed  by  him  or  standing  in  his 
name  on  the  books  of  the  said  association;  and  that  the  same  is  not 
hypothecated,  or  in  any  way  pledged  as  security  for  any  loan  or  debt. 


Name. 
(Original  signatures  necessary.) 


Place  of  Residence. 


Subscribed  and  sworn  to  this  day  of  ,  before  the  under- 
signed, a  in  and  for  said  County. 

[OFFICIAL   SEAL  OF  OFFICER.] 


notary  Public. 

Every  director  must  own  in  his  o^vn  right  at  least  10 
shares  of  the  capital  stock  of  the  association  of  which  he  is  a 
director,  unless  the  capital  of  the  bank  shall  not  exceed  $25,000, 
in  which  case  he  must  own  in  his  own  right  at  least  5  shares 
of  such  capital  stock.  Any  director  who  ceases  to  he  the  owner 
of  the  required  number  of  shares  of  the  stock  or  who  becomes  in 
any  other  manner  disqualified,  shall  thereby  vacate  his  place. 
(Sec.  5146,  Rev.  Stat.,  as  amended  February  28,  1905.) 

At  least  three-fourths  of  the  directors  must  have  resided  in 
the  State,  Territory,  or  district  in  which  the  association  is  lo- 
cated for  a  year  or  more  immediately  preceding  their  election, 
and  must  be  residents  therein  during  their  continuance  in 
ofiice. 

In  all  elections  of  directors,  and  in  deciding  all  questions  at 
meetings  of  shareholders,  each  shareholder  shall  be  entitled 
to  one  vote  on  each  share  of  stock  held  by  him.  Under  section 
5144  shareholders  may  vote  by  proxies  duly  authorized  in  writ- 
ing, but  no  officer,  clerk,  teller,  or  bookkeeper  of  the  associa- 
tion can  act  as  proxy,  and  no  shareholder  whose  liability  is  past 
due  and  unpaid  shall  be  allowed  to  vote.  The  Comptroller, 
supported  by  certain  decisions  of  the  courts,  holds  that  a  di- 
rector is  an  officer  within  the  meaning  of  said  section,  and,  fur- 
thermore, that  the  prohibition  with  regard  to  the  voting  of  stock 
by  a  shareholder  who  is  liable  to  the  bank  merely  applies  to  sub- 
scriptions to  capital  stock. 

Cumulative  voting  at  meetings  of  national  banking  asso- 
ciations is  not  permissible.     For  instance,  if  a  shareholder  is 


682  AppEasTDix. 

the  owner  of  10  shares  of  stock  and  7  directors  are  to  be  elected, 
he  can  not  cast  70  votes  in  favor  of  any  one  person  as  a  director, 
bnt  is  at  liberty  only  to  cast  10  votes  for  each  of  the  7  can- 
didates. 

FORM   OF   PROXY. 

Know  all  men  by  these  presents  that  I, ,  do  hereby  consti- 
tute  and  appoint  attorney  and  agent  for  me,  and  in  my 

name,  place,  and  stead  to  vote  as  my  proxy  at  any  and  all   elections  of 

directors  of according  to  the  number  of  votes  I  should  be 

entitled  to  vote  if  there  personally  present. 

In  witness   whereof   I   have   hereunto   set   my  hand  this   day  of 

,  one  thousand  nine  hundred  and  . 


Signed  in  presence  of  — 


The  directors  having  been  elected  and  having  qualified  should, 
as  soon  as  practicable,  elect  a  president  and  vice-president  of 
the  association,  a  cashier,  and  such  other  officers  as  may  be  re- 
quired (section  5136,  paragraph  5),  and  call  in  the  subscrip- 
tions to  the  stock  according  to  the  terms  of  subscription  and  the 
requirements  of  the  law.  As  soon  as  at  least  50  per  cent  of 
the  capital  stock  of  the  association  is  paid  in  and  all  other  legal 
requirements  complied  with,  a  certificate  in  substantially  the 
following  form  should  be  executed  and  sworn  to  by  the  presi- 
dent or  cashier  and  a  majority  of  the  directors,  and  forwarded 
to  the  Comptroller. 

CEBTIFICATE   OF  OFFICERS   AND   DIRECTORS   RELATIVE   TO   PAYMENT  OF   CAPITAL 
STOCK  AND  COMPLIANCE  WITH  OTHER  LEGAL  REQUIREMENTS. 

The    imdersigned,    officers    and    directors   of   ,    located    at 

,    organized   under   the   provisions    of   the   Revised    Statutes    of   the 

United    States    authorizing    the    organization    of    national    banking    asso- 
ciations, do  hereby  certify  that  of  the  authorized  capital  stock  of  $- 


there  has  been  paid  into  said  bank,  in  cash,  as  permanent  capital  $ , 

constituting  the  first  installment,  and  that  no  part  of  this  sum  is  repre- 
sented by  promissory  notes  or  other  evidences  of  debt;  also  that  the  name 
and  place  of  residence  of  each  director,  and  the  amount  of  stock  individually 
owned  in  good  faith,  are  as  follows: 


Name  of  directors,  a 


Place  of  residence. 
(Town  oi  city  and  State.) 


Number  of 
shares  of  stock. 


a  The  names,  etc.,  of  all  the  directors  of  the  association  must  appear  on  this  page,  but 
only  a  majority  of  the  directors  and  the  president  or  cashier  are  required  to  sign  on  the 
following  page  and  make  acknowledgement. 


Banking.  683 

It  is  further  certified  that  the  association  has  in  good  faith  complied 
with  all  of  the  provisions  that  are  required  to  be  complied  with  before 
receiving  authority  to  commence  the  business  of  banking. 

1 


}■  Directors. 


President. 
Cashier. 


State  of 


Count]/  of 


Before   the   undersigned,   a   of  ,   personally   appeared   the 

above-named  directors  and  other  officers  of  the  aforesaid  national  bank, 
and  made  oath  that  the  foregoing  certificate  and  the  matters  and  things 
therein  set  forth  are  true,  to  the  best  of  tlieir  knowledge  and  belief. 

Witness  my  hand  and  seal  of  office  this  day  of 190 — . 

[official  seal  of  officer.] 

For  instructions  as  to  payment  and  certification  of  subsequent  install- 
ments, see  page  087. 

DEPOSIT    OF    BONDS. 

Banks  with  capital  of  $150,000  or  less  are  required  to  deposit 
bonds  equal  to  one-fourth  of  their  capital,  and  a  deposit  of  at 
least  $50,000  in  bonds  mvist  be  made  by  banks  with  capital  in 
excess  of  $150,000.  The  issue  of  circulating  notes  is  optional 
with  the  directors  of  a  bank,  but  deposit  of  bonds  is  mandatory. 

United  States  registered  interest-bearing  bonds  should  be 
sent  to  the  Comptroller  of  the  Currency  for  transfer  to  and 
deposit  with  the  Treasurer  of  the  United  States  in  trust  for  the 
association  to  the  account  of  which  they  are  to  be  credited.  In 
assigning  bonds  care  should  be  exercised  to  enter  the  exact  cor- 
porate title  of  the  association. 

Coupon  bonds  can  be  exchanged  for  registered  bonds  by 
sending  them  to  the  Comptroller  of  the  Currency  with  a  request 
for  their  exchange  and  that  the  registered  bonds  be  issued  to 
and  deposited  with  the  Treasurer  of  the  United  States  in  trust 
for  the  association  interested. 


684:  Appendix. 

The  Comptroller  ^vill  authorize  the  payment  of  interest  on 
bonds  to  the  bank  depositing  them,  and  the  Treasurer  of  the 
United  States  will  pay  the  interest,  by  check,  to  the  order  of 
the  bank,  payable  at  the  office  of  any  United  States  Assistant 
Treasurer  or  at  any  United  States  depository. 

WITHDRAWAL    OF    BO'NDS. 

The  law  permits  national  banking  associations  to  withdraw 
bonds  in  excess  of  the  legal  requirement,  held  by  the  Treasurer 
of  the  United  States  in  trust,  upon  deposit  of  a  like  amount  of 
lawful  money  with  the  Treasurer  or  an  Assistant  Treasurer  of 
the  United  States,  to  provide  for  the  redemption  of  the  cur- 
rency secured  by  such  bonds. 

Authority  to  withdraw  the  bonds  must  be  conferred  upon  the 
Comptroller  of  the  Currency  by  the  board  of  directors,  and 
upon  some  one  other  than  a  Government  official  to  sell  and  as- 
sign them.  If  an  official  of  the  bank  is  authorized  to  dispose 
of  the  bonds  the  resolution  should  be  certified  by  some  officer 
of  the  association  other  than  the  one  empowered  to  assign  them. 
It  is  recommended  that  resolutions  be  adopted  only  at  regular 
meetings,  but  when  passed  at  a  special  meeting  the  certificate 
must  be  signed  by  two  officers,  a  form  for  which  purpose  will 
be  furnished  upon  application  to  the  Comptroller  of  the  Cur- 
rency. 

CIKCULATIXG   XOTES. 

j^ational  banking  associations  are  entitled  to  receive  and  issue 
'  circulating  notes  equal  to  the  par  value  of  the  bonds  deposited, 
not  exceeding  the  amount  of  the  paid-in  capital  stock,  but  only 
one-third  of  the  amount  issued  to  an  association  can  consist 
of  $5  notes.  (See  section  5171  as  amended  March  14,  1900.) 
Section  13  of  the  act  of  March  14,  1900,  imposes  a  semi- 
annual tax,  of  one-fourth  of  1  per  cent  on  the  average  amount 
of  notes  in  circulation,  secured  by  2  per  cent  bonds  issued  under 
the  provisions  of  that  act.  Circuating  notes  secured  by  all  other 
classes  of  bonds  are  subject  to  the  semiannual  duty  of  one-half 
of  1  per  cent  provided  by  section  5214  of  the  Revised  Statutes. 


Banking. 


685 


Charter  No. 


ORIGINAL  ORDER  FOR  PLATES  AND   CIRCULATION. 
[Letter—;    series  of   1902.] 


National 


Bank  of 


To  the  Comptroller  of  the  Currency. 

Sir:   You  are  requested  to  have  plates  engraved  for  this  bank,  the  cost 
to  be  paid  upon  demand,  and  circulating  notes  printed  therefrom  as  follows: 


Cost  of 
plates . 


$75 
75 
50 


No.  of 
sheets 
ordered. 


Denominations  on  sheets. 


S5.  S5,  $5.  $5 
$10,  $10,  $10, 
$50,  $100  


Total. 


Value  per 
sheet. 


$20 

50 

150 


Amount  of 
circulation. 


Eespcctfully, 


Cashier. 


Note. —  Original  orders  for  circulation  should  be  as  nearly  one  and  one- 
fourth  in  amount  of  the  par  value  of  bonds  to  be  deposited  as  can  be  made 
from  multiples  of  the  face  value  of  sheets  of  notes  ordered.  Circulation 
ordered  in  excess  of  the  bonds  deposited  will  be  required  to  replace 
mutilated  notes  returned  for  redemption  and  destruction. 

The  act  of  March  14,  1900,  provides  that  no  national  bank  shall  be 
entitled  to  receive  from  the  Comptroller,  or  to  issue,  more  tuan  one-third 
in  amount  of  its  circulating  notes  of  the  denomination  of  $.5.  Banks 
desiring  circulating  notes  of  the  denomination  of  $5,  must  necessarily 
order,  at  least,  two  plates. 

It  requires  about  forty  days  to  engrave  the  plate  and  to  print  circulating 
notes,  but  the  order  can  not  be  acted  upon  until  all  legal  requirements  are 
satisfied,  including  the  deposit  of  bonds  with  the  Treasurer  of  the  United 
States,  as  the  charter  number  of  the  association,  which  can  not  be  previ- 
ously determined,  must  appear  upon  the  plate  from  wnich  the  notes  are 
printed. 

supplementary  order. 

Charter  No.  . 


To  the  Comptroller  of  the  Currency. 

Sir:  You  are  requested  to  have  printed  for  this  bank  circulating  notes 
in  blank  to  the  amount  of  (see  footnote)  dollars,  and  of  the  fol- 
lowing denominations : 


Number 
of  sheets. 


Plates. 


Sheets,  $5,  $5,  $5.  «5 ( $20  per  sheet) . . 

Sheets,  $10,  $10,  $10.  $20 ($50  per  sheet) . . 

Sheets,  $50,  $100 ($150  per  sheet) . . 

Total 


Amount. 


Respectfully, 


Cashier. 


Note. — Bank  officers  should  observe  the  multiples  of  the  different  sheets 
of  notes  and  enter  amounts  that  can  be  made  from  such  multiples.     This 


686  Appendix. 

■will  save  returning  orders  for  correction.  Under  the  act  of  March  14,  1900. 
five-dollar  notes  are  limited  to  one-third  of  a  bank's  circulation.  In 
ordering  currency  bank  officers  should  observe  this  limit,  taking  into  con- 
siedration,  in  estimating  the  amount  needed,  both  the  amount  of  fives  out- 
standing and  the  amount  already  printed  and  on  hand  in  the  Treasury 
Department. 

CERTIFICATE  OF  AUTHORITY  TO   COMMENCE  BUSINESS. 

The  necessary  amount  of  bonds  having  been  deposited  "with 
the  Treasurer,  the  Comptroller  will,  if  he  is  satisfied  that 
the  association  has  complied  with  the  requirements  of  the  law, 
and  that  the  shareholders  have,  in  good  faith,  organized  for 
the  legitimate  objects  contemplated  by  the  bank  act,  give  to  the 
association  a  certificate  authorizing  it  to  commence  the  business 
of  banking  (sees.  5168,  5169).  This  certificate,  upon  its  re- 
ceipt, must  be  published  according  to  the  requirements  of 
section  5170,  and  proof  of  publication  forwarded  to  the  Comp- 
troller at  the  proper  time. 

This  and  other  certificates  referred  to  elsewhere  may  be  pub- 
lished for  the  period  of  time  required  by  law,  either  in  a  weekly 
newspaper,  a  weekly  edition  of  a  daily  newspaper,  or  in  every 
issue  of  a  daily  having  no  weekly  edition. 

The  certificate  of  authority  to  begin  business  or,  as  is  gen- 
erally understood,  the  charter  issued  to  a  national  banking 
association,  reads  as  follows : 

No. . 


Tee  A  SUB  Y  Department, 
Office  of  the  Cojiptboller  of  the  Cubbexcy, 

M:ashington, ,  190 — . 

Whereas,  by  satisfactory  evidence  presented  to  the  undersigned,   it  has 
been  made  to  appear  that  — 

The ,  located  in  the  of  ,  in  the  county  of 

and  State  of  ,  has  complied  with  all  the  provisions  of  the 

statutes  of  the  United  States  required  to  be  complied  with  before  an  asso- 
ciation shall  be  authorized  to  commence  the  business  of  banking; 

Now,  therefore,  I, ,  Comptroller  of  the  Currency,  do  hereby 

certify  that  — 

The ,  located  in  the  of  ,  in  the  county  of 

and  State  of ,  is  authorized  to  commence  the  business  of  bank- 
ing as  provided  in  section  tiftj'-one  hundred  and  sixty-nine  of  the  Revised 
Statutes  of  the  United  States. 

In  testimony  whereof  witness  my  hand  and  seal  of  office  this  day 

of  ,  190—. 

[seal.]  , 

Comptroller  of  the  Currency. 


Banking.  687 

commencement  o'f  business. 

The  association  having  received  authority  to  commence  the 
business  of  banking,  it  is  presumed  that  a  suitable  banking 
house  or  room  has  been  secured,  and  also  a  vault  or  safe,  which 
should  be  burglar  and  fire  proof.  In  ordering  stationery  pro- 
vision should  be  made  for  the  printing  of  the  charter  number  of 
the  bank  on  letter  heads.  The  Comptroller  should  be  promptly 
advised  of  the  date  on  which  the  bank  begins  business.  jSToti- 
fication  blank  for  the  purpose  is  furnished. 

PAYMENT  OF  CAPITAL. 

The  certificate  of  officers  and  directors,  a  form  for  which 
is  given  elsewhere,  is  the  certificate  of  the  payment  in  cash 
of  the  first  installment  of  the  capital.  The  five  remaining  in- 
stallments must  also  be  paid  in  money  and  certified  by  the 
president  or  cashier,  under  seal  of  the  bank,  to  the  Comptroller 
monthly  from  the  date  of  the  issuance  of  his  certificate  of  au- 
thority to  commence  business  (section  5140). 

The  form  for  the  latter  certificates  is  as  follows : 

CERTIFICATE   OF   PAYMENT  OF   CAPITAL    STOCK. 


To  the  Comptroller  of  the  Currency, 

Washington,  D.  C. 

Sir:   It  is  hereby  certified  that  the  installment  of 

dollars  ($ ),  has  been  paid  in  on  account  of  the  capital  stock  of  The 

,  the  certification  of  payments  to  date  being  as  follows: 

First  installment   (at  organization),  $ . 

Second  installment,  $ . 

Third  installment,  $ '■ — . 

Fourth  installment,  $ . 

Fifth  installment,  $ . 

Sixth  installment,  $ . 

Total,  $ . 


President  or  Cashier, 
State  of , 


County  of 


Subscribed  and  sworn  to  before  me  this  day  of 

[official  seal  of  officer.] 


,  Notary  Public. 

Note. —  The  second  and  subsequent  payments  need  not  be  restricted  to 
10  per  cent  each,  as  the  capital  stock  of  the  bank  may  be  paid,  if  desired, 
in  advance  of  the  time  required  by  law.  Do  not  include  in  certificates  a 
fraction  of  a  dollar. 

No  payments  on  accovmt  of  subscriptions  to  the  capital  stock  should  be 
carried  to  stock  account,  nor  entered  in  reports  of  condition  as  capital 


688  Appendix. 

stock,  until  date  of  certification  to  this  office.  Pending  such  certification 
pajTiients  should  be  carried  in  a  separate  account  to  the  credit  of  share- 
holders and  entered  in  reports  to  this  office  as  "  capital  paid  in,  not 
certified." 

For  the  legal  method  of  enforcing  the  payment  of  subscrip- 
tions to  capital  stock,  see  section  5141. 

IXCKEASE  OF  CAPITAL  STOCK. 

A  national  banking  association  may,  with  the  consent  of  the 
Comptroller  of  the  Currency  and  bv  a  vote  of  shareholders 
o^^Tiing  two-thirds  of  the  shares,  increase  its  capital  stock  to  any 
sum  approved  by  the  Comptroller.  Xo  increase  is  valid  until 
the  whole  amount  is  paid  in  cash  and  the  Comptroller's  certi- 
ficate of  approval  is  issued,  prior  to  which,  if  required,  ad- 
ditional bonds  must  be  deposited.  (Section  5142,  also  act  of 
Congi'ess  approved  May  1,  1866.) 

A  portion  of  a  proposed  increase  will  not  be  approved 
by  the  Comptroller,  The  whole  amount,  as  stated  in  the  reso- 
lution adopted  by  the  vote  of  the  shareholders,  must  be  paid 
in  and  the  payment  certified  to  the  Comptroller.  The  increase 
becomes  operative  upon  the  issuance  of  the  Comptroller's  cer- 
tificate of  approval. 

An  association  that  contemplates  increasing  its  capital  stock 
should  advise  the  Comptroller  thereof  before  formally  sub- 
mitting the  question  to  the  shareholders,  and,  if  the  proposi- 
tion is  approved,  he  will  furnish  necessary  blanks  and  instruc- 
tions in  relation  to  the  course  of  procedure.  (See  notice  for 
shoreholders'  meeting.) 

In  increasing  the  capital  stock  of  a  bank  no  moneys  in  the 
surplus  fund  or  in  the  undivided  profit  account  can  be  used 
except  by  the  declaration  of  a  dividend  by  the  board  of  directors 
in  the  regiilar  course,  whereupon  the  shareholders,  if  they  so 
desire,  may  use  the  proceeds  thereof  in  payment  to  that  extent 
of  their  subscription  to  the  additional  stock.  Such  portion 
only  of  the  surplus  fund  as  exceeds  the  amount  required  by  law 
to  be  accumulated  can  be  capitalized  in  the  manner  indicated. 

RESOLrriox  to  ixcrease  capital  stock. 
Xo.  . 

The  National Bank  of  , 

(Date.) . 


At  a  meetinfr  of  the  shareholders  of  Tlie  National  Bank 

of  .   held   on   ,   thirty   days'  notice   of  the  proposed   business 


Baxkixg. 


689 


liaving  been  given,  at  which  shareholders  were  present  in  person  and  by 

proxy,  representing  shares  of  the  stock  of  this  association,  it  was 

Resolved,   That,    under   tlie   provisions    of   the    act   of   May    1.    1886,   the 

capital  stock  of  this  association  be  increased  in  the  sum  of  $ ,  making 

the  total  capital  $- 


The  above  resolution   was   adopted   by   the   following  vote, 
more  than  two-thirds  of  the  capital  stock  of  the  association: 


representing 


Name  of  shareholder. 


Residence. 


Name  of  proxy. 


Total  number  of  shares  voted  in  favor  of  the  resolution 
Total  number  of  shares  voted  against  the  resolution  . . . 

Total  number  of  shares  represented  at  the  meeting 

Total  number  of  shares  of  capital  stock 


No.  of  shares. 


I  hereby  certify  that  the  above  is  a  true  and  correct  report  of  the  vote 
and  of  the  resolution  adopted  at  a  meeting  of  the  shareholders  of  this  bank 
held  on  . 

[seal  of  ba:nk.]  , 


Subscribed  and  sworn  to  before  me  this 
[official  seal  of  officer.] 


President  or  Cashier. 
dav  of ,  A.  D. 


Notary  Public. 

certificate  of  increase  of  capital  stock. 

No.  . 

National Bank  of  , 


To  the  Comptroller  of  the  Currency, 

Washington,  D.  C. 
It  is  hereby  certified  that   the  capital   stock  of  "  Tlie 


National 


Bank  of  "  has  been  increased,  pursuant  to  the  provisions  of 

the  act  of  Congress  approved  May   1,   1886,  in  the  sum  of  dollars, 

all  of  which  has  been  paid  in  cash,  and  that  the  paid-up  capital  stock  of 
said  bank  now  amounts  to  dollars. 

[seal  of  bank.]  , 


State  of 


County  of  ,  ss : 

Subscribed  and  sworn  to  before  nie  this 
[official  seal  of  officer.] 
9811—05 2 


President  or  Cashier. 


day  of ,  A.  D. 


Notary  Public. 


REDUCTION  OF  CAPITAL  STOCK. 

A  national  banking  association  may,  with  the  consent  of  the 
Comptroller  of  the  Currency  and  by  a  vote  of  shareholders 
44 


690 


Appendix. 


o^^ling  two-thirds  of  the  shares,  reduce  its  capital  stock  to  any 
sum  not  below  the  minimum  amount  required  by  the  Xational 
Bank  Act.  The  reduction  becomes  operative  upon  the  issuance 
of  the  Comptroller's  certificate  of  approval,  prior  to  whieli 
the  circulation  of  the  bank  must  be  reduced  (if  excessive)  to 
at  least  the  amount  of  the  caj)ital  after  reduction  by  a  deposit 
of  lawful  money  with  the  Treasurer  of  the  United  States  and 
the  withdrawal  of  a  like  amount  of  bonds. 

An  association  that  contemplates  reducing  its  capital  stock 
should  advise  the  Comptroller  thereof  before  formally  sub- 
mitting the  question  to  the  shareholders,  and,  if  the  proposition 
is  approved,  he  aHII  furnish  necessary  blanks  and  instructions 
in  relation  to  the  course  of  procedure.  See  notice  for  share- 
holders' meeting. 


RESOLUTION   TO   BEDI7CE  CAPITAL   STOCK. 


The 


No.  . 

National 


Bank  of 


(Date.) 


National 


Bank 


At  a  meeting  of  the  shareholders  of  The  — 

of  ,   held   on  ,   thirty   days'   notice  of   the   proposed   business 

having  been  given,  at  which  shareholders  were  present  in   person  and  bv 
proxy,  representing  shares  of  stock  of  this  association,  it  was 

Resolved,    That,    under    the    provisions    of    section    5143,    United    States 
Revised  Statutes,  and  of  the  law  amendatory  thereof,  the  capital  stock  of 

this  association  be  reduced  in  the  sum  of  $ ,  leaving  the  total  capacity 

after  said  reduction  $ . 

The  foregoing  resolution  was  adopted  by  the  following  vote,  representing 
more  than  two-thirds  of  the  capital  stock  of  the  association : 


Name  of  shareholder. 


Residence. 


Name  of  Proxy. 


No.  of  Shares. 


Total  number  of  shares  voted  in  favor  of  the  resolution 
Total  number  of  shares  voted  against  the  resolution. . . 

Total  number  of  shares  represented  at  the  meeting 

Total  number  of  shares  of  capital  stock 


I  hereby  certify  that  the  foregoing  is  a  true  and  correct  report  of  the 
vote  and  of  the  resolution  adopted  at  a  meeting  of  the  shareholders  of  this 
bank,  held  on . 

[seal  of  bank.]  , , 


Subscribed  and  sworn  to  before  me  this 
[official  seal  of  officeb.] 


President  or  Cashier. 
day  of ,  A.  D. 


Notary  Public. 


Baxkinct.  691 

Xo  part  of  the  reduction  can  be  carried  to  surplus  or  to  un- 
divided profits  without  the  unanimous  consent  of  the  share- 
holders. When  the  reduction  is  made  the  shareholders  should 
return  their  old  certificates.  New  certificates  for  the  capital 
as  reduced  should  then  be  issued.  It  is  not  unlawful  to  issue 
certificates  for  fractional  shares  and  to  pay  dividends  thereon. 

BY-LAWS. 

When  a  bank  is  organized  the  board  of  directors  should  adopt 
by-laws.  (Section  5136,  paragraph  6.)  The  following  is  sub- 
mitted as  a  general  form  that" may  be  modified  in  any  manner 
deemed  expedient,  but  not  in  conflict  with  law  or  the  articles 
of  association : 

GENERAL  FORM  OF  BY-LAWS  OF  NATIONAL  BANKS. 

BY-LAWS   OF  THE    [HERE  INSERT  THE   TITLE  OF   THE  BANK],   ORGANIZED   UNDEB 
THE  NATIONAL-BANKING  LAWS  OF  THE  UNITED   STATES. 

ELECTIONS. 

Section  L  Tlie  regular  annual  meetings  of  the  shareholders  of  this  bank 
for  the  election  of  directors  shall  be  held  at  its  banking  house  on  the  second 
Tuesday  of  January  of  each  year,  between  the  hours  of  10  and  4  of  said 
day.  It  shall  be  the  duty  of  the  board  of  directors,  within  one  niontli 
prior  to  the  time  of  said  election,  to  appoint  three  shareholders  to  be 
judges  of  said  election,  who  shall  hold  and  conduct  the  same,  and  who 
shall,  after  the  election  has  been  held,  notify  under  their  hands  the 
cashier  of  this  bank  of  the  result  thereof  and  the  names  of  the  directors- 
elect. 

Sec.  2.  The  cashier,  upon  receiving  the  returns  of  the  judges  of  the 
elections  as  aforesaid,  shall  cause  the  same  to  be  recorded  upon  the  minute 
book  of  the  bank,  and  shall  notify  the  directors-elect  of  their  election,  and 
of  the  time  at  which  they  are  required  to  meet  at  the  banking  house  of  the 
bank  for  the  purpose  of  organizing  the  new  board.  If  at  the  time  fixed  for 
the  meeting  of  the  directors-elect  there  is  not  a  quorum  in  attendance,  the 
members  present  may  adjourn  from  time  to  time  until  a  quorum  is 
secured ;  and  no  business  shall  be  transacted  prior  to  taking  the  oath  of 
office  as  prescribed  by  law. 

Sec.  3.  If,  for  any  cause,  the  annual  election  of  directors  is  not  held  on 
the  date  fixed  in  the  articles  of  association,  the  directors  in  office  shall 
order  an  election  to  be  held  on  some  other  day,  of  which  special  election 
notice  shall  be  given  in  accordance  with  the  requirements  of  section  5149, 
United  States  Revised  Statutes,  judges  appointed,  returns  made  and  re- 
corded, and  the  directors-elect  notified,  according  to  the  provisions  of 
sections  1  and  2  of  these  by-laws. 

officers. 

Sec.  4.  Tlie  officers  of  this  bank  shall  be  a  president,  vice-president  (who 
shall  be  members  of  the  board  of  directors),  cashier,  and  such  other  offi- 
cers aS  may  be  from  time  to  time  required  for  the  prompt  and  orderly 
transaction  of  its  business,  to  be  elected  or  appointed  by  the  board  of 
directors,  by  whom  their  several  duties  shall  be  prescribed. 


092  Appendix. 

Sec.  5.  The  president  shall  hold  his  office  for  the  current  year  for  which 
the  board  of  Avhich  he  shall  be  a  member  was  elected,  unless  he  shall  re- 
sign, become  disqualified,  or  be  removed ;  and  any  vacancy  occurring  in 
the  office  of  president  or  in  the  board  of  directors  shall  be  filled  by  the 
remaining  members. 

Sec.  6.  The  cashier  and  tlie  subordinate  officers  and  clerks  shall  be 
appointed  to  hold  their  offices,  respectively,  during  the  pleasure  of  the 
board  of  directors. 

Sec.  7.  The  cashier  of  this  bank  shall  be  responsible  for  all  the  moneys, 
fund,  and  valual)les  of  the  bank,  and  shall  give  bond,  with  security  to  be 

approved  by  the  board,  in  the  penal  sum  of  dollars,  conditioned 

for  the  faithful  and  honest  discharge  of  his  duties  as  such  cashier,  and 
that  he  will  faithfully  apply  and  account  for  all  such  moneys,  funds, 
and  valuables,  and  deliver  the  same  to  the  order  of  the  board  of  directors 
of  this  bank,  or  to  the  person  or  persons  authorized  to  receive  them. 

Sec.  8.  The  president  of  this  bank  shall  be  responsible  for  all  such  sums 
of  money  and  property  of  every  kind  as  may  be  intrusted  to  his  care  or 
placed  in  his  hands  by  the  board  of  directors  or  by  the  cashier,  or  other- 
wise come  into  his  hands  as  president,  and  shall  give  bond,  with  security 
to  be  approved  by  tlie  board,  in  the  penal  sum  of  dollars,  condi- 
tioned for  the  faithful  discharge  of  his  duties  as  such  president,  and 
that  he  will  faithfully  and  honestly  apply  and  account  for  all  sums  of 
money  and  other  property  of  this  bank  that  may  come  into  his  hands  as 
such  president  and  pay  over  and  deliver  the  same  to  the  order  of  tlm 
board  of  directors,  or  to  any  other  person  or  persons  authorized  by  the 
board  to  receive  tlie  same. 

Sec.  9.  The  teller  shall  be  responsible  for  all  such  sums  of  money,  prop- 
eerty,  and  funds  of  every  description  as  may  from  time  to  time  be  placed 
in  his  hands  by  the  cashier,  or  otherwise  come  into  his  possession  as  teller; 
and  shall  give  bond,  with  security  to  be  approved  by  the  board,  in  the 
penalty  of  dollars,  conditioned  for  the  honest  and  faithful  dis- 
charge of  his  duties  as  teller,  and  that  he  will  faithfully  apply,  account 
for,  and  pay  over  all  moneys,  property,  and  funds  of  every  description 
that  may  come  into  his  hands,  by  virtue  of  his  office  as  teller,  to  the  order 
of  the  board  of  directors  as  aforesaid,  or  to  such  person  or  persons  as  may 
be  authorized  to  demand  and  receive  the  same. 


Sec.  10.  The  following  is  an  impression  of  the  seal  adopted  by  the 
board  of  directors  of  this  bank : 

(Impression  of  seal.) 

conveyance  of  real  estate. 

Sec.  11.  All  transfers  and  conveyances  of  real  estate  shall  be  made  by 
the  association,  under  seal,  in  accordance  with  the  orders  of  the  board  of 
directors,  and  shall  be  signed  by  the  president  or  cashier. 

increase  of  stock. 
Sec.  12.  Whenever  an  increase  of  stock  shall  be  determined  upon,  in 
accordance  with  law,  it  shall  be  the  duty  of  the  board  to  notify  all  the 
shareholders  of  the  same,  and  to  cause  a  subscription  to  be  opened  for 
such  increase  of  capital.  In  the  increase  of  capital  each  shareholder  shall 
have  the  privilege  of  subscribing  for  such  number  of  shares  of  the  new 
stock  as  he  may  be  entitled  to  subscribe  for,  according  to  his  existing 
stock  in  the  bank.  If  any  shareholder  fails  to  subscribe  for  the  amount 
of  stock  to  which  he  may  be  entitled,  the  board  of  directors  may  determine 
what  disposition  shall  be  made  of  the  privilege  of  subscribing  for  the 
unsubscribed  stock. 


Baxkixg.  693 

BUSINESS    OF    THE   BANK. 

Sec.   13.  This  bank  shall  be  opened  for  business  from  o'clock  a.  m. 

to  o'clock  p.  m.  of  each  day  of  the  year  excepting  Sundays,  and  days 

recognized  by  the  laws  of  this  State  as  holidays.  When  any  regular  meet- 
ing of  the  board  of  directors  falls  upon  a  holiday,  the  meeting  shall  be 
held  on  such  other  day  as  the  board  may  previously  designate. 

Sec.  14.  The  regular  meetings  of  the  board  of  directors  shall  be  held 
on  the  [here  insert  time  of  meeting].  Special  meetings  may  be  called 
by  the  president,  cashier,  or  at  the  request  of  three  or  more  directors,  and 
should  there  be  no  quorum  at  any  regular  or  special  meeting,  the  mem- 
bers present  may  adjourn  from  day  to  day  until  a  quorum  is  in  attend- 
ance.    In  the  absence  of  a  quorum  no  business  shall  be  transacted. 

Sec.  15.  There  shall  be  a  committee,  to  be  known  as  the  discount  com- 
mittee, consisting  of  the  president,  cashier,  and  directors,  appointed  by  tlie 

board  every  months,  to  continue  to  act  until  succeeded,  who  shall 

have  power  to  discount  and  purchase  bills,  notes,  and  other  evidences 
of  debt,  and  to  buy  and  sell  bills  of  exchange;  and  who  shall,  at  each 
regular  meeting  of  the  board  of  directors,  make  a  report  of  all  bills,  notes, 
and  other  evidences  of  debt  disc9unted  and  purchased  by  them  for  the 
bank  since  their  last  report. 

MINUTE  BOOK. 

Sec.  16.  The  organization  papers  of  this  bank,  the  returns  of  the  judges 
of  the  elections,  the  proceedings  of  all  regular  and  special  meetings  of 
the  directors  and  of  the  shareholders,  the  by-laws  and  any  amendments 
thereto,  and  reports  of  the  committees  of  directors  shall  be  recorded  in  the 
minute  book :  and  the  minutes  of  each  meeting  shall  be  signed  by  the 
president  and  attested  by  the  cashier. 

TRANSFERS    OF    STOCK. 

Sec.  17.  The  stock  of  this  bank  shall  be  assignable  and  transferable 
only  on  the  books  of  this  bank,  subject  to  the  restrictions  and  provisions 
of  the  national  banking  laws;  and  a  transfer  book  shall  be  provided  in 
■which  all  assignments  and  transfers  of  stock  shall  be  made. 

Sec.  18.  Transfers  of  stock  shall  not  be  suspended  preparatory  to  the 
declaration  of  dividends ;  and,  unless  an  agreement  to  the  contrary  shall 
be  expressed  in  the  assignments,  dividends  shall  be  paid  to  the  share- 
holders in  whose  name  the  stock  shall  stand  at  the  date  of  the  declaration 
of  dividends. 

Sec.  19.  Certificates  of  stock,  signed  by  the  president  and  cashier,  may 
be  issued  to  shareholders,  and  the  certificate  shall  state  upon  the  face 
thereof  that  the  stock  is  transferable  only  upon  the  books  of  the  bank; 
and  when  stock  is  transferred,  the  certificates  thereof  shall  be  returned 
to  the  bank,  canceled,  preserved,  and  new  certificates  issued. 

EXPENSES. 

Sec.  20.  All  the  current  expenses  of  the  bank  shall  be  paid  by  the 
cashier,  who  shall  every  six  months,  or  oftener  if  required,  make  to  the 
board  a  detailed  statement  thereof. 

contracts. 

Sec.  21.  All  contracts,  checks,  drafts,  etc.,  and  all  receipts  for  circu- 
lating notes  received  from  the  Comptroller  of  the  Currency,  shall  be  signed 
by  the  president  or  cashier. 

examinations. 

Sec.  22.  There  shall  be  appointed  by  the  board  of  directors  a  committee 

of  members,  whose  duty  it  shall  be  to  exercise  a  supervision  of  the 

business  of  the  bank,  and  to  examine  every  three  months  the  affairs  of  this 
bank,  count  its  cash,  compare  its  assets  and  liabilities  with  the  accounts 


C9i  Appendix. 

of  the  general  ledger,  ascertain  whether  the  accounts  are  correctly  kept 
and  the  condition  of  the  bank  corresponds  therewith,  and  whether  the 
bank  is  in  a  sound  and  solvent  condition,  and  to  recommend  to  the  board 
such  clianges  in  the  manner  of  doing  business,  etc.,  as  shall  seem  to  be 
desirable,  the  result  of  which  examination  shall  be  reported  in  writing 
to  the  board  at  the  next  regular  meeting  thereafter. 

Sec.  23.  The  board  of  directors  shall  have  power  to  change  the  form  of 
the  books  and  accounts  when  deemed  expedient,  and  define  the  manner  in 
which  the  afl'airs  oi  the  bank  shall  be  conducted. 

QUORUMS. 

Sec.  24.  A  majority  of  all  the  directors  is  required  to  constitute  a 
quorum  to  do  business. 

Sec.  25.  These  by-laws  may  be  changed  or  amended  by  the  vote  of  a 
majority  of  the  directors. 

COXVEESION   OF   STATE  BANK. 

Section  5154  provides  for  the  conversion  of  banks  existing  under  State 
laws   into  national   banking  associations,  and  reads  as  follows: 

Any  bank  incorporated  by  special  law,  or  any  banking  institution  or- 
ganized under  a  general  law  of  any  State,  may  become  a  national  asso- 
ciation under  this  title  by  the  mame  prescribed  in  its  organization  certi- 
ficate ;  and  in  such  case  the  articles  of  association  and  the  organization 
certificate  may  be  executed  by  a  majority  of  the  directors  of  the  bank  or 
banking  institution ;  and  the  certificate  shall  declare  that  the  owners  of 
two-thirds  of  the  capital  stock  have  authorized  the  directors  to  make 
such  certificate,  and  to  change  and  convert  the  bank  or  banking  institu- 
tion into  a  national  association.  A  majority  of  the  directors,  after  exe- 
cuting the  articles  of  association  and  organization  certificate,  shall  have 
power  to  execute  all  other  papers,  and  to  do  whatever  may  be  required  to 
make  its  organization  perfect  and  complete  as  a  national  association. 

In  case  of  the  conversion  of  a  State  bank,  there  is  not  a 
dissolntion  of  the  State  corporation,  but  merely  a  change  of 
title  and  governmental  supervision ;  the  bank  is  liable  for  all 
obligations  and  may  enforce  all  contracts  made  with  it  whilo 
a  State  corporation. 

If  preferred,  the  State  banks  may  be  placed  in  voluntary 
liquidation  in  conformity  with  State  law,  and  those  interested 
therein  organize  a  national  bank,  which  association  will  be  at 
liberty  to  buy  the  properly  purehaseable  assets  of  the  former, 
and  there  need  be  no  interruption  in  business.  A  specific  con- 
tract is  necessary  for  the  purchase  of  assets  and  assumption 
of  liabilities  to  depositors  and  other  creditors  of  the  State  bark. 
In  such  cases  bills  receivable  and  other  assets  should  be  listed, 
carefully  scrutinized,  and  properly  indorsed,  the  banking  house, 
if  purchasefl,  deeded  to  the  new  bank,  and  the  deed  recorded  ;  all 
general  and  individual  accounts  closed  and  transferred,  and 
new  accounts  opened  and  old  ]iass  books  called  in  and  new  books 
issued.  The  capital  must  be  fully  paid  in  cash,  and  not  in  assets 
of  the  closed  bank. 


Baxking.  695 

Under  the  national  banking  law,  associations  can  loan  on  per- 
sonal security  only ;  are  prohibited  from  investing  in  real  estate 
other  than  that  necessary  to  the  conduct  of  the  business  of  the 
bank;  and  are  restricted  in  the  volume  of  accommodations 
to  any  one  person,  company,  corporation,  or  firm,  etc.,  to  10 
per  cent  of  the  capital  stock  of  the  national  bank  actually  paid 
in.  The  courts  have  held  that  it  is  ultra  vires  of  a  national 
'  banking  association  to  invest  in  the  stock  of  another  corporation. 
State  banks  proposed  to  be  converted  and  holding  such  pro- 
hibited assets  are  required  to  dispose  of  them  prior  to  receiv- 
ing official  approval  to  begin  business  as  a  national  banking 
association,  and  an  agreement  is  exacted  from  directors  of  a 
national  banking  association  organized  to  succeed  a  State  or 
private  bank  that  no  assets  of  that  character  Avill  be  purchased 
by  the  association. 

The  following  is  the  form  of  notice  to  be  submitted  of  inten- 
tion to  convert  a  State  bank  into  a  national  banking  association : 

APPLICATION    TO    CONVERT    A    STATE    BANK. 

The  name  of  the  place  sliould  form  a  part  of  the  title,  thus  "  The  First 

National    Bank   of   A ,"   but   the  name   of  the   State   should  not   be 

included. 

Consideration  will  not  be  given  to  an  application  for  a  title  including 
the  word  "  First  "  if  a  national  bank  exists  or  has  existed  at  the  given 
locality ;  «or  to  an  application  for  a  title  identical  with  that  of  a  national 
bank  heretofore  in  existence,  nor  to  one  materially  similar  to  that  of  a 
national,  State,  or  other  bank  existing  in  the  place. 

,   190—. 

To  THE  Comptroller  of  the  Currency, 

Washington. 

Sir:   Notice  is  hereby  given  that  we,  the  undersigned,  being  a  majority 

of  the  board  of  directors  of  '"  The ,"  having  a  paid  in  and 

unimpaired   capital   of  $ ,a   intend  to   convert  the   said  bank   into   a 

national  banking  association,  in  accordance  with  the  provisions  of  section 
51o4  of  the  Revised   Statutes  of  the  United   States,  under  the  title  "  The 

,"  to  be  located  at ,  county  of  ,  State 

of  ,  with  a  capital  of  $ . 

We  request  that  the  title  be  reserved  for  a  period  of  sixty  days  and  the 
necessary   conversion    papers   and   instructions   sent   to ,    at 


Signature  of  directors. 


Residences. 


a  If  the  capital  is  less  than  the  amount  required  of  a  national  bank  of  primary  organi- 
zation, the  necessary  increase  must  be  effected,  in  conformity  with  the  banking  laws  of 
the  State,  prior  to  the  execution  of  conversion  papers.  Evidence,  from  the  proper  State 
official,  of  the  legal  increase  is  required  with  the  conversion  papers. 


696  Appendix. 

When  the  application  to  convert  has  received  the  Comptrol- 
ler's approval  the  shareholders  should  execute  a  form  similar 
to  the  following : 


AUTHORITY   FOE   COXVEESIOIf  OF    STATE  BANK. 

We,  the  undersigned  stockholders  of  The  ,  located  in  the  . 

county  of ,    State   of   ,    having   a   capital   of  ■   dollars, 

do  hereby  authorize  and  empower  the  directors  thereof  to  change  and  con- 
vert said  bank  into  a  national  banking  association  under  the  provisions 
of  section  5154  of  the  Revised  Statutes  of  the  United  States,  or  of  acts 
amendatory  thereof;  and  Ave  do  also  authorize  the  directors,  or  a  majority 
thereof,  to  make  and  execute  the  articles  of  association  and  organization 
certificates  required  to  be  made  or  contemplated  by  said  statutes;  and 
also  to  make  and  execute  all  other  papers  and  certificates,  and  to  do  all 
acts  necessary  to  convert  the  said  bank  into  a  national  banking  associa- 
tion, and  to  do  and  perform  all  such  acts  as  may  be  necessary  to  transfer 
the  assets  of  every  description  and  character  of  the  said  State  bank  to 
the  national  banking  association  into  which  it  is  to  be  converted,  so  that 
the  said  conversion  may  be  absolute  and  complete;  and  we  do  hereby 
assume,  and  authorize  the  said  directors  to  assume,  as  the  name  of  the 
national  banking  association  into  which  the  said  State  bank  is  to  be  con- 
verted, "  The :  "  and  Ave  do  hereby  appoint,  ,  ,  ,. 

,   AA'ho   are   noAV   the    directors   of   the    said    State   bank,   to   be   the 

directors  of  the  said  national  bank,  to  hold  their  offices  as  such  directors 
until  the  regular  annual  election  of  directors  is  held,  pursuant  to  the 
provisions  of  said  Revised  Statutes,  and  until  their  successors  are  chosen 
and  qualified ;  and  A\'e  do  hereby  authorize  the  said  directors  of  the  said 
national  bank  to  continue  in  office  the  officers  of  the  said  bank,  or  to 
appoint  or  elect  others. 

In  Avitness  whereof  Ave  have  hereunto  set  our  hands  and  Avritten  against 

our  names  the  number  of  shares  oAvned  by  us,   respectiA'ely,  this 

day  of  ,  A.  D.  . 


Signature  of  stockholders,  a 


Xumber  of  shares  owned  by  each. 


ARTICLES   OF    ASSOCIATION. 

(Executed  in  duplicate.) 

We,    the    undersigned,    directors    of    Tlie ,    having    been 

authorized  by  tlie  owners  of  tAvo-thirds  of  tlie  capital  stock  of  said  bank 
to  change  and  conAcrt  tlie  said  bank  into  a  national  banking  association 
under  the  provisions  of  section  5154  of  the  Revised  Statutes  of  the  United 
States,  or  of  acts  amendatory  thereof,  and  to  execute  articles  of  associa- 

o  The  signatures  of  tlie  owners  of  at  least  two-thirds  of  the  stock. 


BAJfKING.  697 

tion,  do  liereby,  in  our  own  behalf,  and  in  behalf  of  the  stockholders  whom 
we  represent,  make  and  execute  the  following  articles  of  association: 

First.  The  title  of  the  association  into  which  the  said  State  bank  is  to 
be  changed  and  converted  shall  be  "  The ." 

Second.  The  place  where  its  banking  house  or  office  shall  be  located,  and 
its  operations  of  discount  and  deposit  carried  on,  and  its  general  business 
conducted  shall  be  the  ,  county  ,  State  of  . 

Third.  The  board  of  directors  shall  consist  of  shareholders. 

Fourth.  The  regular  annual  meeting  of  the  shareholders  for  the  election 
of  directors  shall  be  held  at  the  banking  house  of  this  association  on  the 
second  Tuesday  of  January  of  each  year;  but  if  no  election  shall  be  held 
on  that  day,  it  may  be  held  on  any  other  day,  according  to  the  provisions 
of  section  5149  of  the  Revised  Statutes  of  the  United  States,  and  all  elec- 
tions shall  be  held  according  to  such  regulations  as  may  be  iMescribfd 
by  the  board  of  directors,  not  inconsistent  with  the  provisions  of  the 
national-banking  law,  and  of  these   articles. 

Fifth.  The   capital   stock   of   this   association   shall   be  thousand 

dollars,  divided  into  shares  of  one  hundred  dollars  each;  but  the  capital 
may,  with  the  ajjproval  of  the  Comptroller  of  the  Currency,  be  increased 
at  any  time  by  shareholders  owning  two-thirds  of  the  stock,  according  to 
the  provisions  of  an  act  of  Congress  approved  ]\Iay  1,  1886;  and  in  case 
of  tlie  increase  of  the  capital  of  the  association,  each  shareholder  shall 
have  the  privilege  of  subscribing  for  such  number  of  shares  of  the  pro- 
posed increase  of  the  capital  stock  as  he  may  be  entitled  to,  according  to 
the  number  of  shares  owned  by  him  before  the  stock  is  increased. 

Sixth.  The  board  of  directors,  a  majority  of  whom  shall  be  a  quorum 
to  do  business,  shall  elect  one  of  its  members  president  of  this  association, 
who  shall  hold  his  office  (unless  he  shall  be  disqualified,  or  be  sooner  re- 
moved by  a  two-thirds  vote  of  all  of  the  members  of  the  board)  for  the 
term  for  which  he  was  elected  a  director.  The  directors  shall  have  power 
to  elect  a  vice-president,  who  shall  also  be  a  member  of  the  board  of 
directors,  and  who  shall  be  authorized,  in  the  absence  or  inability  of  the 
president  from  any  cause,  to  perfom  all  acts  and  duties  pertaining  to  the 
office  of  president,  except  such  as  the  president  only  is  authorized  by  law 
to  perform,  and  to  elect  or  appoint  a  cashier  and  such  other  officers  and 
clerks  as  may  be  required  to  transact  the  business  of  the  association;  to 
fix  the  salaries  to  be  paid  to  them  and  continue  them  in  office,  or  to  dismiss 
them,  as,  in  the  opinion  of  a  majority  of  the  board,  the  interests  of  the 
association  may  demand. 

The  directors  shall  have  power  to  define  the  duties  of  the  officers  and 
clerks  of  the  association;  to  require  bonds  from  them  and  to  fix  the  pen- 
alty thereof;  to  regulate  the  manner  in  which  the  elections  of  directors 
shall  be  held,  and  to  appoint  judges  of  the  elections;  to  make  all  l)y-laws 
that  it  may  be  proper  for  them  to  make  not  inconsistent  with  law,  for  the 
general  regulation  of  tlie  business  of  the  association  and  the  management 
of  its  afi'airs,  and  generally  to  do  and  perform  all  acts  that  it  may  be 
legal  for  a  board  of  directors  to  do  and  jjerform  under  the  Revised  Statutes 
aforesaid. 

Seventh.  This  association  shall  continue  for  the  period  of  twenty  years 
from  the  date  of  the  execution  of  its  organization  certificate,  unless  sooner 
placed  in  voluntary  liquidation  by  the  act  of  its  shareholders  owning  at 
least  two-tliirds  of  its  stock,  or  otherwise  dissolved  by  autliority  of  law. 

Eighth.  These  articles  of  association  may  be  changed  or  amended  at 
any  time  by  shareholders  owning  a  majority  of  the  stock  of  the  associa- 
tion in  any  manner  not  inconsistent  with  law;  and  the  board  of  directors, 
or  any  three  shareholders,  may  call  a  meeting  of  the  shareholders  for  this 
or  any  other  purpose  not  inconsistent  with  law,  by  publishing  notice 
thereof   for  thirty   days   in  a   newspaper   published   in   the   town,   city,   or 


€1)S 


Appendix. 


county  where  the  bank  is  located,  or  by  mailing  to  each  shareholder  notice 
in  writing  thirty  days  before  the  time  fixed  for  the  meeting. 

In  witness  whereof  we  have  liereunto  set  our  hands  this  dav  of 


-,  having  been  duly 


ORGANIZATION   CERTIFICATE. 

We.   the  undersigned  directors  of  the 

authorized  by  the  owners  of  two-thirds  of  its  capital  stock  to  change  and 
convert  said  bank  into  a  national  banking  association,  and  to  make  the 
necessary  organization  certificate,  under  the  provisions  of  section  5154  of 
the  Revised  Statutes  of  the  United  States,  or  of  acts  amendatory  thereof, 
do  sign  and  execute  the  following  organization  certificate,  which  we  hereby 
declare  we  are  authorized  to  make  by  the  owners  of  two-thirds  of  the  capi- 
tal stock  of  the  said  State  bank. 

First.  The  title  of  this  association  shall  be  ''  The ." 

Second.  The  said  association  shall  be  located  and  continued  in  the 

of ,  county  of  ,  and  State  ,  where  its  operations  of  dis- 
count and  deposit  are  to  be  carried  on. 

Third.  The    capital    stock    of    this    association    shall    be    dollars 

( $ ) ,  divided  into  shares  of  dollars  each,  as  it  is  now 

divided  in  the  said  State  bank. 

Fourth.  The   name    and    residence    of    each    of   the    stockholders    of   the 
said  State  bank,  which  is  to  bcome  a  national  bank  under  the  provisions 

of   the   Revised    Statvites   aforesaid,    and   the   number   of   shares   of 

dollars  each  held  bv  each  stockholder  are  as  follows : 


Name. 


Number  of  shares. 


Fifth.  The  certificate  is  made  in  order  that  the  said  State  bank  and  the 
stockholders  thereof  may  avail  themselves  of  the  advantages  of  the  afore- 
said Revised  Statutes,  and  that  the  said  State  bank  may  be  changed  and 
converted  into  a  national  banking  association,  under  the  foregoing  title. 

In  witness   whereof  we  have  hereunto  set  our  hands  this  day 

of  . 


Tlie  signatures  of  a  majority  of  directors  required. 
State  of , 


County  of  ,  ss.: 

Before  the  undersigned  a 


of 


-,  personally  appeared 


,  ,  ,  ,  directors  of  the  aforesaid  State  bank,  to 

me  well  known,  who  severally  acknowledged  that  they  executed  the  fore- 
going certificate  for  the  purpose  therein  mentioned. 

Witness  mv  hand  and  seal  of  office  this  dav  . 


[official  seal  of  officer.] 


Banking.  699 


•CERTIFICATE   RELATIVE   TO   PAYMENT  OF   CAPITAL   STOCK   OF    STATE   BAXK   COX- 
VERTIXG   INTO   NATIONAL  BANK. 

It  is  hereby  certified  that  The  Bank  of  ,  which   is  to  be 

converted  into  "  The  National  Bank  of  /'  in  con- 
formity witli  tlie  provisions  of  section  5154  of  the  Revised  Statutes  of  the 
United  States,  authorizing  the  conversion  of  ''  any  bank  incorporated  by 
special  law  or  any  banking  institution  organized  under  a  general  law  of 
any  State,"  has  a  paid  in  and  unimpaired  capital  of  $ . 


President . 
or 


Cashier. 


State  of 


County  of 


Subscribed  and  sworn  to  before  the   undersigned,  a  of  the  said 

county,  this  day  of  ,   190 — . 


[official    SEAL    OF    OFFICER.]  [office]       

All  other  papers  and  proceedings  Avill  be  similar  to  those  re- 
quired of  associations  primarily  organized  under  the  national 
banking  laws. 

EXTENSION   O'F  CORPORATE   EXISTENCE. 

The  act  of  Congress  approved  July  12,  1882,  empowers  the 
extension  of  the  corporate  existence  of  national  banking  asso- 
ciations whose  periods  of  succession  are  about  to  expire.  Sec- 
tion 5130  provides  that  all  associations  organized  under  it  shall 
have  succession  for  twenty  years  from  the  date  of  the  execution 
of  their  organization  certificates. 

The  officers  of  a  national  bank  can  therefore  ascertain  the 
date  of  the  expiration  of  the  corporate  existence  of  the  associa- 
tion from  the  date  of  the  last  acknowledgment  in  the  organiza- 
tion certificate.  If  the  certificate  has  been  lost  or  the  date  is 
uncertain,  information  can  be  obtained  upon  application  to  the 
Comptroller.  Under  the  act  of  July  12,  1882,  and  the  regula- 
tions of  the  Comptroller's  office,  shareholders  owning  at  least 
two-thirds  of  capital  stock  are  authorized  to  give  their  written 
consent  to  extension  of  corporate  existence  at  any  time  Avithin 
two  years  prior  to  the  expiration  of  existing  charter,  and  the 
necessary  blanks  and  instructions  will  be  sent  a  sufficient  time 
in  advance  to  enable  them  to  do  so.  While  no  meeting  of  share- 
holders is  necessary,  the  law  only  requiring  the  written  consent 


TOO 


Appendix. 


of  the  owners  of  two-thirds  of  the  capital  stock,  th:-rc  is  no  legal 
objection  to  the  holding  of  a  meeting  of  shareholders  for  the 
piir^jose  of  considering  the  propriety  of  extending  charter.  The 
formal  amendment,  certificate  relative  thereto,  and  request  for 
approval  to  be  executed  and  filed  with  the  Comptroller  are  as 
follows : 


AMENDMENT   OF   ARTICLES   OF   ASSOCIATION   OF   NATIONAL   BANK. 

In  accordance  with  and  in  pursuance  of  the  provisions  of  "An  act  to 
enable  national  banking  associations  to  extend  their  corporate  existence, 
and   for   other   purposes,"   approved   July    12,    1882,   we,    the   undersigned, 

shareholders  of  "  The ,"  located  at  in  the  county  of 

and  State  of  ,  owning  the  number  of  shares  of  the  capital 

stock  of  said  association  set  opposite  our  respective  names,  aggregating  not 
less   than    two-thirds   of   the   stock   of   said    association,    do   hereby   consent 

and  agree  that  the  article   of  the   articles   of  association   of   said 

national  banking  association  be,  and  is  hereby,  amended  to  read  as  follows: 

■'  This    association    shall    continue    until    close    of    business    on 


19 — ,  imless  sooner  placed  in  voluntary  liquidation  by  the  act  of 
its  shareholders  owning  at  least  two-thirds  of  its  stock,  or  otherwise  dis- 
solved by  authority  of  law." 

In  witness  whereof,  we,  the  undersigned,  have  hereto  set  our  hands. 


Date  of 
signinif. 


Signature  of  share- 
holder. 


Address. 


Signature  of  proxy. 


Number 
of  shares. 


CERTIFICATE. 

To  THE  Comptroller  of  the  Currency. 

Washington,  D.C. 

Sir  :  In  pursuance  of  the  provisions  of  "An  act  to  enable  banking  asso- 
ciations to  extend  their  corporate  existence,  and  for  other  purposes," 
approved  July  12,  1882,  I  hereby  certify  that  shareholders  owning  not  less 

than  two-thirds  of  the  capital   stock  of  "  The "  have  con 

sented  in  writing  to  the  extension  of  the  charter  of  said  association ;  tha  t 
tlie  signatures  to  the  attached  amendment  of  the  articles  of  association, 
executed  in  duplicate,  are  the  true  and  correct  signatures  of  said  share- 
liolders,  or  of  their  lawfully  appointed  attorneys,  and  that  one  of  the  in- 
struments, in  all  respects  like  the  other,  is  on  file  in  the  bank. 

The  foregoing  certificate  is  made  luider  seal  of  the  association  in  accord- 
ance with  a  resolution  of  the  board  of  directors  adopted  at  a  meeting  held 

on   the  day    of ,    100 — ,    in    which    the    president    or   cashier, 

was  also  authorized  to  make  an  application  for  tlie  approval  of  the 
amended  articles  of  association,  a  copy  of  which  resolution  has  been  re- 
corded on  the  minute  book  of  the  banl<. 

[seal   of   BANK.]  , 


President  or  Cashier. 


(The  above  certificate  should  not  be  made  prior  to  date  on  which  the 
amendment  is  last  signed.) 


REQUEST   FOR   APPROVAL. 

The  Comptroller  of  the  Currency  is  hereby  requested  to  approve  the  fore- 
going amendment  of  the  articles  of  association  of  said  bank,  extending  its 
.corporate  existence  for  twenty  years,  pursuant  to  the  act  of  Congress  en- 
i:itled  "An  act  to  enable  national  banking  associations  to  extend  their 
corporate  existence,  and  for  other  purposes,"  approved  July  12,  1882. 

President  or  Cashier. 

PROXY  FOR  USE  IX  EXTENDING  CORPORATE  EXISTENCE  OF  NATIONAL  BANK. 

Know    all    men   by   these    presents,   that   I, ,    of 


liereby    constitute    and    appoint    irrevocably my    true    and 

lawful  attorney,  for  me  and  in  my  name  and  stead  to  sign  all  necessary 
papers  in  connection  with  the  extension  of  the  corporate  existnece  of  the 

■  ,  under  the  act  of  Congress  approved  July  12,   1882,  or  any 

amendment  of  said  act,  and   I  hereby  consent  that  the  article  of 

the  articles  of  association  of  the  ^^ ,  be  so  amended  as  to  read 

as  follows : 

"This  association  shall  continue  until  close  of  business  on  ,  un- 
less sooner  placed  in  voluntary  liquidation,  by  the  act  of  its  shareholders 
<owning  at  least  two-thirds  of  its  stock,  or  otherwise  dissolved  by  authority 
of  law." 

I  further  grant  unto  my  said  attorney  full  power  and  authority  to  act  in 
;and  concerning  the  premises  as  fully  and  effectually  as  I  might  do  if 
personally  present. 

In   witness   whereof   I   have  hereunto  set  my  hand  this  day   of 

,  in  the  vear  one  thousand  nine  hundred  and  . 


Signed  in  presence  of  two  ^vitnesses: 


AUTHORITY   OF    REPRESENTATIVE   OF   OTHER    CORPORATION    CONSENTING   TO 
EXTENSION    CORPORATE    EXISTENCE    OF    NATIONAL    BANK. 


At  a  meeting  of  the  of  the  of  ,  held  on  the 

-day   of   ,   it  was   voted   that be,   and   he   is   hereby, 

appointed  irrevocably  as  its  attorney,  with  power  of  substitution,  to  con- 
sent to  and  sign,  in  its  behalf,  the  amendment  of  the  article  of  the 

articles  of  association  of  The  National  Bank  ,  said 

amendment  reading  as  follows : 

"  This  association  shall  continue  until  close  of  basiness  on  ,  un- 
less sooner  placed  in  voluntary  liquidation  by  the  act  of  its  shareholders 
-o^^•ning  at  least  two-thirds  of  its  stock,  or  otherwise  dissolved  by  authority 
of   law." 

A  true  copy  from  the  records. 

Attest:  .     [Affix  seal.] 

EXTENSION    OF    CHARTER. 

[Letter  —  ;  series  of  1902.] 

Order  for  plates  and  circulation. 

Charter  No.  . 

National  Bank  of  , 


To  THE  Comptroller  of  the  Currency, 

Sir  :   As  the  corporate  existence  of  this  bank  is  to  be  legally  extended 
for  twenty  years,  you  are  requested  to  have  new  plates  engraved,  tb.e  cost 


702 


Appendix. 


to   be    paid    upon    demand,    and    circulating    notes    printed    therefrom    a?- 
follows : 


Cost  of 
plates. 


il5 

50 


Number  of 

shares 

ordered. 


Denominations  on  sheets. 


SIO,  $10,  $10,  §20.' 
$50.  $100 


Total 


Value 
per 

sheet. 


820. 
50. 
150. 


Amount  of 
circula- 
tion. 


Respectfully, 


Cashier. 


Note. —  The  act  of  July  12,  1882,  requires  that  circulating  notes  issued 
to  banks  subsequent  to  extension  of  corporate  existence  shall  bear  such 
devices  as  shall  make  them  readily  distinguishable  from  prior  issues. 
Lawful  money  must  be  deposited  within  three  years  from  date  of  extension 
to  redeem  old  issues  outstanding.  Unless  the  deposit  is  to  be  made  imme- 
diately the  foregoing  order  should  be  limited  in  amount  to  50  per  cent 
of  the  par  value  of  bonds  on  deposit  with  the  Treasurer  of  the  United 
States ;  otherwise  the  full  amount  of  circulation  to  which  the  bank  is. 
entitled  should  be  ordered.  The  act  of  March  14,  1900,  limits  the  issue 
of  circulating  notes  of  the  denomination  of  $.5  to  one-third  of  the  total 
issues  of  each  bank.  If,  therefore,  notes  of  that  denomination  are  desired, 
it  will  be  necessary  to  order  at  least  two  plates. 

This  order  should  accompany  the  amendment  providing  for  the  extension 
of  the  corporate  existence  of  the  association. 

The  following  instructions  slionld  be  strictly  observed :  The 
date  on  which  each  shareholder  or  his  attorney  signs  the  amend- 
ment should  be  entered  in  the  cohnnn  for  that  purpose.  An 
attorney  representing  several  shareholders  need  sign  but  once 
on  a  page,  if  the  names  of  shareholders  are  bracketed.  Resi- 
dence and  number  of  shares  of  each  shareholder  consenting 
to  the  extension  mnst  be  given. 

When  the  OAvners  of  at  least  two-thirds  of  the  stock  have 
signed  the  amendment,  in  person  or  by  proxy,  a  meeting  of 
directors  shonld  be  held  and  a  resolution  adopted  directing  the 
president  or  cashier  to  make  the  necessary  certification  to  the 
Comptroller  of  the  Currency,  and  request  the  approval  of  the 
amendment  as  provided  by  law.  The  amendment,  with  ap- 
pended certificate,  and  request  for  approval,  should  be  trans- 
mitted to  the  Comptroller  at  least  two  months  prior  to  the  ex- 
piration of  the  corporate  existence  of  the  bank  in  order  to 
allow  sufficient  time  to  cause  the  special  examination  to  be 
made  as  required  by  law.     If  any  shares  of  stock  standing  irt 


Banking.  T03 

the  name  of  administrators,  executors,  trustees,  or  guardians 
are  represented,  certified  copies  of  the  legal  appointment  of  such 
administrators,  executors,  trustees,  or  guardians  should  be  fur- 
nished to  the  bank  unless  the  directors  are  satisfied  of  the  ex- 
istence of  authority  of  such  administrators,  etc.,  to  sign  the 
amendment.  In  order  that  stock  held  by  an  assignee  may  be 
represented,  the  shares  must  have  been  formally  transferred 
to  him  on  the  books  of  the  bank.  If  the  amendment  is  signed 
by  attorneys  acting  for  shareholders  or  by  an  ofiicer  of  another 
corporation,  properly  executed  powers  of  attorney  or  other  au- 
thority should  be  required  and  retained  for  the  files  of  the  bank. 

Subsequent  to  the  receipt  of  extension  papers  in  due  form, 
the  Comptroller  will  order  the  special  examination  required  by 
law,  the  expense  of  which  must  be  paid  by  the  bank.  If  the 
report  of  the  examiner  is  favorable,  the  Comptroller  will,  at 
the  date  of  expiration  of  existing  charter,  issue  the  certificate 
of  extension. 

The  law  requires  that  circulating  notes  issued  to  the  bank 
after  the  date  at  which  the  i)eriod  of  succession  begins  shall 
be  of  diiferent  devices  from  those  issued  before.  This  ne- 
cessitates the  procuring  of  new  plates,  which  are  prepared  at 
the  expense  of  the  bank.  A  blank  to  enable  a  bank  to  order 
the  engraving  of  plates  and  the  printing  of  new  circulation  will 
be  furnished.  The  order  should  be  transmitted  with  the  amend- 
ment. 

No  transfer  of  bonds  is  necessary,  as  the  extended  association 
is,  in  all  respects,  the  same  as  before  extension.  The  new 
circulating  notes  will  be  issued  as  the  old  issues  are  received 
for  redemption,  until  the  end  of  three  years  from  the  date  of 
extension,  when  lawful  money  must  be  deposited  for  the  re- 
demption of  such  portion  of  the  old  circulation  as  may  then 
remain  outstanding.  The  old  issues  may  be  provided  for  by 
depositing  la"\vful  money  in  full,  or  in  installments,  at  any  time 
prior  to  the  exj^iration  of  the  three-year  period. 

officers'  bonds. 
When  the  corporate  existence  of  a  national  bank  is  extended, 
the  renewal  of  bonds  of  officers  and  employees  should  have 
attention. 


70-i  Appendix. 

SHAREHOLDEES    NOT    DESIRING   TO    EXTEITD   THE    CORPORATE    EX- 
ISTENCE OF  THE  ASSOCIATION. 

Some  shareholders  may  not  assent  to  the  extension,  and  may 
wish  to  withdraw  from  the  association.  Section  5  of  the  act 
of  July  12,  1882,  provides  what  may  be  done  in  such  cases, 
as  follows: 

That  when  any  national  banking  association  has  amended  its  articles  of 
association  as  provided  in  this  act,  and  the  Comptroller  has  granted  liis 
certificate  of  approval,  any  shareholder  not  assenting  to  such  amendment 
may  give  notice  in  writing  to  tlie  directors,  within  thirty  days  from  the 
date  of  the  certificate  of  approval,  of  his  desire  to  withdraw  from  said 
association,  in  which  case  he  shall  be  entitled  to  receive  from  said  banking 
association  the  value  of  the  shares  so  held  by  him,  to  be  ascertained  by  an 
appraisal  made  by  a  committee  of  three  persons,  one  to  be  selected  by  such 
shareholder,  one  by  the  directors,  and  the  third  by  the  first  two;  and  in 
case  the  value  so  fixed  shall  not  be  satisfactory  to  any  such  shareholder  he 
mav  appeal  to  the  Comptroller  of  the  Currency,  who  shall  cause  a  reap- 
praisal to  be  made,  which  shall  be  final  and  binding;  and  if  such  reap- 
praisal shall  exceed  the  value  fixed  by  said  committee,  the  bank  shall  pay 
the  expenses  of  said  reappraisal,  and  otherwise  the  appellant  shall  pay  said 
expenses ;  and  the  vahie  so  ascertained  and  determined  shall  be  deemed 
to  be  a  debt  due,  and  be  forthwith  paid,  to  said  shareholder,  from  said 
hank;  and  the  shares  so  surrendered  and  appraised  shall,  after  due  notice, 
be  sold  at  public  sale,  Avithin  thirty  days  after  the  final  appraisal  provided 
in  this  section. 

RE-EXTENSION    OF    CORPORATE    EXISTENCE. 

The  act  of  Congress  approved  April  12,  1902,  provides  that 
the  Comptroller  of  the  Currency  may,  in  the  manner  provided 
by,  and  under  the  conditions  and  limitations  of  the  act  of  July 
12,  1882,  extend  for  a  further  period  of  twenty  years  the 
charter  of  any  national  banking  association  extended  under 
said  act  which  shall  desire  to  continue  its  existence  after  the 
expiration  of  its  charter.  The  form  of  amendment  and  certifi- 
cate follows : 


RE-EXTENSION  OF  CHARTER   —  AMENDMENT    OF    ARTICLES    OF    ASSOCIATION    OF 

NATIONAL   BANK. 

In  accordance  with  and  in  pursuance  of  the  provisions  of  "  An  act  to 
enable  national  banking  associations  to  extend  their  corporate  existence, 
and   for    other    purposes,"   approved   Jvily    12,    1882,    and    the    amendment 

approved  April  12,  1902,  we,  the  imdersigned,  shareholders  of  '"  The  

,"  located  at  in  the  county  of  and  State  of  , 

owning  the  number  of  shares  of  the  capital  stock  of  said  association  set 
opposite  our  respective  names,  aggregating  not  less  than  two-thrids  of  the 

stock   of   said   association,   do  liereby   consent   and   agree   tliat   tlie  

article  of  the  articles  of  association  of  said  national  banking  association 
be.  and  is  liereby,  amended  to  read  as  follows: 

"  This  association  shall  continue  until  close  of  business  on , 

10 — ,  unless  sooner  placed  in  voluntary  liquidation  by  the  act  of  its  share- 


Banking. 


'05 


holders  OAA-ning  at  least  two-thirds  of  its  stock,  or  otherwise  dissolved  by 
authority  of  law." 

In  witness  whereof  we,  the  undersigned,  have  hereto  set  our  hands. 


Date  of 
signing. 


Signature  of  stock- 
holder. 


Address. 


Signature  of  proxy. 


No.  of 
shares. 


-,  IDO- 


To  the  Comptroller  of  the  Currency, 

Washington,  D.  C. 

Sir:  In  pursuance  of  the  provisions  of  "An  act  to  enable  national 
banking  associations  to  extend  their  corporate  existence,  and  for  other 
purposes,"  approved  July  12,  1882,  and  the  amendment  approved  April  12, 
1902,  I  hereby  certify  that  shareholders  owning  not  ,less  than  two-thirdt 

of  the  capital  .stock  of  "  The ,"  have  consented  in  writing  to 

the  re-extention  of  the  charter  of  said  association;  that  the  signatures  to 
the  attached  amendment  of  the  articles  of  association,  executed  in  dup- 
licate, are  the  true  and  correct  signatures  of  said  shareholders,  or  of  theiv 
lawfully  appointed  attornej's,  and  that  one  of  the  instruments,  in  all 
respects  like  the  other,  is  on  file  in  the  bank. 

The  foregoing  certificate  is  made  under  seal  of  the  association  in  accord- 
ance with  a  resolution  of  the  board  of  directors  adopted  at  a  meeting  held 

on  the day  of ,  190 — ,  in  which  the  president,  or  cashier,  wa.^ 

also  authorized  to  make  an  application  for  the  approval  of  the  amended 
articles  of  association,  a  copy  of  which  resolution  has  been  recorded  on  the 
minute  book  of  the  bank. 


[seal  of  bank.] 


President  or  Cashier. 


(The  above  certificate  should  not  be  made  prior  to  date  on  which  the 
amendment  is  last  signed.) 

The  Comptroller  of  the  Currency  is  hereby  requested  to  approve  the 
foregoing  amendment  of  the  articles  of  association  of  said  bank,  re-extending 
its  corporate  existence  for  twenty  years,  pursuant  to  the  act  of  Congress 
entitled  "  An  act  to  provide  for  the  extension  of  the  charters  of  national 
banks,"  approved  April  12,  1902. 

[seal  of  bank.]  , 

President  or  Cashier. 

The  other  forms  are  similar  to  those  used  in  connection  with 
the  original  or  first  extension  of  charter. 


AMENDMENTS. 

Section    5139    of    the    Revised    Statutes    provides    that    no 

change  shall  be  made  in  the  articles  of  association  of  a  national 

bank  by  which  the  rights,  remedies,  or  security  of  the  existing 

creditors  of  the  association  shall  be  impaired;  which,  by  im- 

45 


706  Appendix. 

plication,  authorizes  amendments  not  contravening  the  rights 
of  creditors.  As  a  matter  of  fact,  the  national  banking  law 
specifically  provides  for  amendments  of  the  articles  of  asso- 
ciation, changing  corporate  title,  location  of  bank,  increasing 
and  reducing  capital  stock,  and  extension  of  corporate  exist- 
ence. Amendment  of  the  last  named  character  requires  the 
written  consent  of  shareholders  owning  two-thirds  of  the  stock 
of  an  association,  but  the  other  changes  require  authorization 
by  a  two-thirds  stock  vote  at  a  meeting  of  shareholders  called 
for  the  purpose. 

Ordinarily  a  provision  is  written  into  the  articles  of  asso- 
ciation of  national  banks  authorizing  amendment,  in  any  re- 
spect not  conflicting  with  law,  by  a  majority  stock  vote. 
AYhere  this  provision  exists,  the  right  is  recognized  to  amend 
the  articles,  by  such  a  vote,  relating  to  the  number  of  directors, 
the  time  of  holding  annual  elections  (in  the  month  of  Jan- 
uary), the  number  of  directors  required  to  constitute  a 
quorum,  etc. 

In  the  interest  of  banks  concerned,  and  in  accordance  with 
the  rulings  of  the  office,  a  proposition  to  amend  the  articles 
of  association  of  a  bank,  in  any  particular,  should  be  submitted 
to  the  Comptroller  of  the  Currency,  for  approval  and  specific 
instructions,  in  advance  of  action  by  stockholders.  In  this 
connection  attention  is  called  to  comments  following  "  iN^otice 
for  shareholders'  meeting,"  appearing  on  page  712. 

CHANGE    OF    XAME    AXD    LOCATION. 

A  national  banking  association  may,  with  the  consent  of 
the  Comptroller  of  the  Currency  and  by  the  vote  of  the  share- 
holders owning  at  least  two-thirds  of  the  stock  of  the  asso- 
ciation^,  change  its  name  or  place  where  its  operations  are 
carried  on  to  any  other  locality  in  the  same  State  not  more 
than  30  miles  distant. 

When  an  association  desires  to  change  its  title  or  location 
the  proposition  should  be  submitted  to  the  Comptroller  of  the 
Currency  for  consideration,  and  when  approved  a  meeting  of 
shareholders  called  that  the  required  vote  may  be  obtained. 

Due  notice  of  the  meeting  must  be  given  and  a  certified 
copy  of  the  resolution,  under  seal  of  the  bank,  sent  to  the 


Banking.  707 

Comptroller  of  the  Currency,  accompanied  by  a  copy  of  the 
resolution  of  the  board  of  directors  authorizing  the  Treasurer 
of  the  United  States  to  assign  to  the  bank  under  its  new  title 
the  bonds  held  by  him  as  security  for  circulation,  together 
with  an  order  for  plate  or  plates  and  circulation  to  conform 
to  change  of  title,  etc.  Ko  circulating  notes  of  a  bank  under 
its  original  title  will  be  issued  from  this  office  subsequent  to 
date  of  approval  of  change  of  corporate  name. 

No  change  of  name  or  location  is  valid  until  the  Comp- 
troller's certificate  of  approval  is  issued.  (See  act  of  Congress 
approved  May  1,  1886,  to  be  found  in  the  national-bank  act.) 

LIQUIDATION. 

A  national  banking  association  may,  under  section  5220,  be 
placed  in  voluntary  liquidation  by  a  vote  of  the  owners  of  two- 
thirds  of  the  stock.  Before  calling  a  meeting  of  shareholders, 
however,  for  the  purpose  of  voting  upon  the  proposition,  ap- 
plication should  be  made  to  the  Comptroller  for  his  approval 
and  the  necessary  blanks  and  instructions. 

Notice  of  the  meeting  as  herein  elsewhere  provided  should 
be  given  to  the  shareholders  at  which  it  is  proposed  to  take 
the  vote  required.     (See  notice  for  shareholders'  meeting.) 

When  a  meeting  has  been  held  and  a  resolution  adopted 
by  the  required  vote,  it  is  the  duty  of  the  board  of  directors 
to  cause  notice  of  the  fact  to  be  certified,  under  seal  of  the 
association,  to  the  Comptroller  of  the  Currency  by  the  presi- 
dent or  cashier,  and  publication  thereof  to  be  made  for  a 
period  of  two  months  in  a  newspaper  published  in  the  city  of 
New  York  and  also  in  the  place  in  which  the  association  is 
located ;  or  if  no  newspaper  is  published  in  such  place  then  in 
a  newspaper  published  nearest  thereto,  that  the  association  is 
closing  up  its  affairs,  and  notifying  note  holders  and  other  cred- 
itors to  present  the  notes  and  other  claims  against  the  associa- 
tion for  payment.      (See  sec.  5221.) 

When  an  association,  w4th  the  approval  of  the  Comptroller, 
goes  into  liquidation,  its  affairs  pass  into  the  hands  of  its  siiare- 
holders  for  such  legal  disposition  as  iriay  be  deemed  proper; 
and,  unless  a  liquidating  agent  is  elected  by  the  shareholders, 
the  settlement  of  the  affairs  of  the  bank  would  appear  to  de- 
volve upon  the  directors,  who  will  be  at  liberty  to  continue 


T08 


Appendix. 


one  or  more  of  the  officers,  or,  in  lieu  thereof,  to  appoint  an 
agent  for  the  purpose  of  conducting  liquidating  proceedings. 


RESOLUTION  FOR  VOLUNTARY  LIQUIDATION. 
Xo.    . 

The National Bank  of 


(Date. 


National 


Bank  of 


At  a  meeting  of  the  shareholders  of  the  — 

held  on  ,  thirty  days'  notice  of  tlie  proposed  business  having 


been  given,  at  which  shareholders  were  present,  in  person  and  by  proxy, 
representing  shares  of  the  stock  of  this  association,  it  was 

Resolved,  That  "  The  National  Bank "  be  placed  in 

voluntary  liquidation,  under  the  provisions  of  section  5220  and  5221, 
United  States  Revised  Statutes,  to  take  effect  . 

The  foregoing  resolution  was  adopted  by  the  following  vote,  representing 
two-thirds  of  the  capital  stock  of  the  association: 


Name  of  shareholder. 


Residence. 


Name  of  proxy. 


Number  of  shares. 


Stock  voted  against  resolution. 


Name  of  shareholder. 


Residence. 


Name  of  proxy. 


Number  of  shares. 


Stock  not  represented  at  meeting. 


Total  number  of  shares  voted  in  favor  of  the  resolution. 
Total  number  of  shares  voted  against  the  resolution,  — 

Total  number  of  shares  represented  at  the  meeting,  

Total  number  of  shares  not  represented  at  the  meeting,  - 
Total  number  of  shares  of  capital  stock, . 


Banking.  709 

I  hereby  certify  that  the  foregoing  is  a  true  and  correct  report  of  the 
Tote  and  of  the  resolution  adopted  at  a  meeting  of  the  shareholders  of  this 
bank  held  on  . 


[seal  of  bank.]  , 

President  or  Oashier. 

Subscribed  and  sworn  to  before  me  this  day  of ,  A  .D. . 

[seal  of  notary.]  , 

Xotary  Public. 
NOTICE.  i^  . 

Form  of  notice  to  be  published  two  months,  from  date  on 
which  resolution  to  liquidate  takes  effect,  in  a  newspaper  in 
the  city  of  Xew  York  and  in  one  published  in  the  place  in 
which  the  bank  is  located.  When  publication  has  been  made 
as  required  by  section  5221  of  the  United  States  Eevised 
Statutes,  afhdavit  of  the  publisher  should  be  sent  to  the  Comp- 
troller of  the  Currency: 

Tlie   National   Bank   ,   located   at  ,   in   the 

State  of ,  is  closing  its  affairs.     All  note  holders  and  other  creditors 

of  the  association  are  therefore  hereby  notified  to  present  the  notes  and 
other  claims  for  payment. 


President  or  Cashier. 
Dated, .  190—. 

LIQUIDATION    FO'R   CONSOLIDATION. 

The  only  reference  to  the  subject  of  consolidation  in  the 
national  bank  act  appears  in  the  act  approved  July  14,  1870 
(U.  S.  Rev.  Stat.,  sec.  5223),  and  is  to  the  effect  that  any 
association  closing  its  affairs  (by  voluntary  liquidation),  under 
authority  of  law,  for  the  purpose  of  consolidating  with  another 
association,  shall  not  be  required  to  deposit  lawful  money  to 
provide  for  its  outstanding  circulation,  but  its  assets  and  lia- 
bilities shall  be  reported  by  the  association  with  which  it  is  in 
process  of  consolidation. 

By  implication,  this  provision  would  appear  to  authorize 
the  assignment  of  bonds  on  deposit  with  the  Treasurer  of  the 
United  States  to  secure  the  circulation  of  the  liquidating  bank 
to  the  absorbing  association,  and  require  the  maintenance  of 
a  redemption  fund  for  the  outstanding  issues  of  the  bank 
which  has  gone  into  liquidation.  With  the  redemption  of 
issues  of  the  closed  bank  would  follow  the  issue  of  a  like 
amount  of  notes  of  the  absorbing  association.     As  a  matter 


710  Appexdix. 

of  fact,  this  permissive  feature  in  full  has  never  been  availed 
of  bv  an  association  absorbing  the  business  of  one  placed  in 
liquidation,  as  it  has  been  found  more  advantageous  to  deposit 
lawful  monev  to  redeem  the  notes  of  the  liquidated  bank  and 
to  simultaneouslv  issue  new  notes  of  their  own  on  bonds  de- 
posited. 

In  case  the  absorbing  bank  has  not  a  sufficient  stock  of 
incomplete  currency  in  the  vaults  of  this  office,  an  order  for 
the  printing  of  the  necessary  supply  will  have  prompt  atten- 
tion. As  an  association  placed  in  voluntary  liquidation  has 
six  months  within  which  to  deposit  lawful  money  to  redeem 
its  outstanding  circulation,  deposits  may  be  made  in  install- 
ments if  desired,  Avhicli  will  enable  the  transfer  of  a  like 
amount  of  bonds  and  the  issue  thereon  of  a  corresponding 
amount  of  circulating  notes  to  the  absorbing  association. 

Consolidation  can  only  be  effected  by  pursuing  one  of  the 
following  methods : 

f  First.  Without  an  increase  of  capital  the  directors  of  the 
absorbing  bank  may  enter  into  a  contract  with  the  directors 
or  agents  of  the  liquidated  association  to  purchase  its  assets, 
assume  liabilities  to  depositors  and  other  creditors,  and  to 
pay  the  value  of  assets  purchased  in  excess  of  liabilities  to 
depositors  and  other  creditors,  less  any  expenses  incident  to 
liquidation. 

Second.  By  increasing  the  capital  stock  of  the  absorbing 
banlc  to  an  amount  equal  to  that  of  the  liquidated  bank,  the 
additional  shares  may  be  sold  to  stockholders  of  the  latter, 
consent  thereto  having  been  previously  obtained  from  share- 
holders of  the  absorbing  association.  As  the  law  is  construed 
as  requiring  the  payment  of  capital,  original  or  on  account  of 
increase,  in  money,  and  not  in  "  notes  or  like  evidence  of 
debt,"  the  right  to  accept  assets  representing  stock  of  the 
closed  bank,  and  to  issue  therefor  certificates  in  the  continu- 
ing bank  is  not  recognized.  In  every  such  case  shareholders 
of  the  closed  association  are  paid  the  value  of  their  stock 
either  in  cash  or  cashier's  check,  the  proceeds  being  available 
in  payment  of  shares  to  which  they  may  be  entitled  in  the 
absorbing  corporation. 

The  pre-emptive  right  of  shareholders  to  participate  pro 
rata  in  an  increase  of  capital  is  well  recognized,  and  it  is  gen- 


Banking.  711 

erallj  incorporated  in  the  articles  of  association.  In  order 
TO  avoid  possible  litigation,  the  course  usually  pursued  is  to 
secure  waivers  of  right  to  participate  from  shareholders  of 
record.  Provision  having  thus  been  made  for  shareholders 
of  the  closed  bank,  the  directors  of  the  continuing  bank  are 
at  liberty  to  contract  for  the  purchase  of  assets  and  the 
assumption  of  liabilities  to  depositors  and  other  creditors  of 
the  liquidated  bank. 

Third.  The  remaining  method,  and  one  occasionally  pur- 
sued, is  to  place  the  interested  banks  in  voluntary  liquidation, 
under  section  5220  of  the  United  States  Revised  Statutes, 
organize  anew  under  a  different  corporate  title,  and  acquire, 
in  the  manner  hereinbefore  outlined,  the  business  of  the 
liquidating  associations.  This  method  enables  the  incorpora- 
tors to  place  the  stock  as  they  may  determine. 

LIQUIDATION   AT   EXPIRATION    OF   CHARTER. 

Section  7  of  the  act  of  July  12,  1882,  provides  that  national 
banking  associations  whose  corporate  existence  has  expired  or 
shall  hereafter  expire,  and  which  do  not  avail  themselves  of 
the  provisions  of  this  act,  shall  be  required  to  comply  with  the 
provisions  of  sections  5221  and  5222  of  the  Revised  Statutes 
in  the  same  manner  as  if  the  shareholders  had  voted  to  go 
into  liquidation,  as  provided  in  section  5220  of  the  Revised 
Statutes;  and  the  provisions  of  sections  5224  and  5225  of  the 
Revised  Statutes  shall  also  be  applicable  to  such  associations, 
except  as  modified  by  this  act;  and  the  franchise  of  such 
associations  is  extended  for  the  sole  purpose  of  liquidating 
their  affairs  until  such  affairs  are  finally  closed. 

"While,  under  the  above-mentioned  act,  no  meeting  of  share- 
holders is  necessary  for  the  purpose  of  voting  on  the  question 
of  expiration  of  charter  (the  corporate  existence  expiring  by 
limitation,  if  not  extended  as  provided  by  law),  it  would  seem 
to  be  proper  to  call  the  shareholders  together  on  or  before 
date  of  expiration  of  charter,  for  the  exchange  of  views  and 
the  taking  of  such  action  as  may  be  deemed  advisable  with 
regard  to  closing  the  affairs  of  the  bank  after  the  charter  has 
expired. 

If  the  charter  of  a  bank  is  permitted  to  expire,  the  president 


712  Appendix. 

or  cashier  should  execute  aud  forward  to  the  Comptroller  of 
the  Currency,  certificate  to  that  effect,  in  the  following  foi-ni: 

cebtificate  of  expiration  of  cobpobate  existence. 

National Bank , 


To  the  Comptroller  of  the  Cl'ebency, 

Washington. 

Sir:   It  is  hereby  certified  that  the  corporate  existence  of ,  located 

at  ,  in  the  State  of  ,  having  expired  at  close  of  business  on 

the  day  of  ,  ,  the  bank  is  now  closing  its  affairs  under 

the  provisions  of  section  7  of  the  act  of  July  12,  1882. 

In  testimony  ■whereof  I  have,  by  instruction  of  the  board  of  directors  of 
said  association,  hereto  subscribed  my  name  and  affixed  tlie  seal  of  said 
association  at  ,  aforesaid,  the  day  and  year  above  written. 

[seal  of  bank.]  , 

President   or   Cashier. 
notice. 

The National Bank ,  located  at .  in  the  State 

of  ,  is  closing  up  its  affairs,  its  corporate  existence  having  expired 

at  close  of  business  on  the  day  of ,  .     All  note  holders 

and  others,  creditors  of  said  a'ssociation,  are  therefore  hereby  notified  to 
present  the  notes  and  other  claims  against  the  association  for  payment. 


President  or  Cashier. 
Dated . 

Note. —  Tlie  foregoing  notice  to  be  published  for  a  period  of  two  months 
in  a  newspaper  in  the  city  of  New  York,  and  also  in  a  newspaper  published 
in  the  place  in  which  the  bank  is  located.  (See  section  5221,  Revised 
Statutes.)  A  certificate  of  the  publisher  that  the  required  publication  has 
been  made,  together  with  a  slip  containing  notice  from  one  issue  of  each 
paper,  should  be  sent  to  the  Comptroller  of  the  Currency. 

The  settlement  of  the  affairs  of  a  bank,  at  expiration  of 
charter,  should  be  effected  in  the  same  manner  as  in  the  case 
of  liquidation  bv  resolution  of  shareholders. 

XOTICE   FOR  SHAKEHOLDEKS'  MEETING. 

Xo  notice  of  an  annual  meeting  is  required  when  the  time 
and  place  are  provided  for  in  the  articles  of  association  (unless 
the  bv-laws  make  a  notice  necessary)  if  at  said  meeting  the 
election  of  directors  only  is  to  take  place. 

For  an  annual  meeting,  at  which  business  of  an  unusual  or 
extraordinary  character,  such  as  the  amendment  of  articles  of 
association,  is  to  be  considered,  and  for  all  special  me&tings  of 
.'•hareholders,  notice  should  be  given  as  required  by  the  by-laws 
and  articles  of  association  of  the  bank.     If  no  provision  is 


Banking.  7lo 

made  therein,  thirty  days'  notice  is  required.  The  notice,  a 
copy  of  which  should  accompany  the  papers  transmitted  to 
the  Comptroller,  showing  date  of  issue,  should  state  clearly 
(1)  the  place  for  holding  the  meeting,  (2)  the  time,  and  (3) 
the  business  proposed  to  be  transacted. 

BRANCH  BANKS. 

The  only  proyision  in  the  national  bank  act  relating  to 
branch  banks  is  found  in  section  5155,  United  States  Reyised 
Statutes,  and  reads  as  follows: 

It  shall  be  lawful  for  any  bank  or  banking  association,  organizexl  under 
State  laws  and  having  branches,  tlie  capital  being  joint  and  assigned  to 
and  used  by  the  mother  bank  and  branches  in  definite  proportions,  to 
become  a  national  banking  association  in  conformity  with  existing  laws, 
and  to  retain  and  keep  in  operation  its  branches,  or  such  one  or  more  of 
them  as  it  may  elect  to  retain. 

The  granting  of  this  special  priyilege  to  State  banks  and  the 
absence  of  any  similar  proyision  in  the  law  with  respect  to 
banks  of  primary  organization  haye  ahyays  been  construed  b}' 
the  Comptroller  to  imply  that  banks  of  the  latter  class  were 
not  permitted  to  haye  branches.  The  section  cited  absolutely 
restricts  branch  banks  of  conyerted  associations  to  such  as  haye 
a  definite  proportion  of  the  capital  of  the  parent  bank  assigned 
to  them,  and  it  is  not  to  be  assumed  that  the  law  contemplated 
that  associations  of  primary  organization  should  be  permitted 
to  assign  any  portion  of  their  capital  to  and  operate  branches. 

This  fact  is  further  to  be  inferred  from  section  5138,  United 
States  Revised  Statutes,  which  prohibits  the  formation  of  as- 
sociations ydth  less  capital  than  $200,000  in  cities  of  popula- 
tion exceeding  50,000,  and  with  less  than  a  specified  capital 
in  places  with  population  less  than  50,000. 

To  permit  the  establishment  of  branch  banks  Ayould  not  only 
render  possible  an  evasion  of  the  provisions  of  section  5138, 
but  tend  to  discourage  the  organization  of  banking  associations 
which,  in  the  absence  of  such  branches,  might  be  formed. 

Section  5134  provides  in  part  that  the  organization  certifi- 
cate of  a  national  bank  shall  show  "  the  place  where  its  opera- 
tions of  discount  and  deposit  are  to  be  carried  on,"  and  section 
5190  that  "  the  usual  business  of  each  national  banking  asso- 
ciation shall  be  transacted  at  an  office  or  banking  house  (not 


714  Appendix. 

offices  or  banking  houses)   located  in  tlie  place   (not  places) 
specified  in  its  organization  certificate." 

The  word  "  place  "  and  "  at  an  office  or  banking  house  " 
have  always  been  construed  by  the  Comptroller  to  mean  the 
legal  domicile  of  the  corporation,  of  which  it  can  have  but 
one,  and  this  construction  is  sustained  by  the  Solicitor  of  the 
Treasury  in  an  opinion  rendered  August  10,  1899,  on  the 
question  of  the  right  of  a  national  bank  to  establish  and  main- 
tain an  auxiliary  cash  room  at  some  point  distant  from  its 
banking  house,  for  the  purpose  of  receiving  deposits  and  pay- 
ing checks.     The  Solicitor  says: 

This  section  (5190,  U.  S.  Rev.  Stat.)  contemplates  that  the  usual  busi- 
ness of  a  national  banking  association  shall  be  transacted  at  one  office  and 
banking  house,  and  as  receiving  deposits  and  paying  checks  belong  to  the 
"  usual  business  "  of  a  bank,  I  am  of  the  opinion  that  the  statute  does  not 
authorize  the  establishment  of  an  auxiliary  cash  room  in  a  different  part  of 
the  city  for  the  purpose  proposed.  Besides,  it  may  be  observed  that  if  a 
national  banking  association  can  lawfully  establish  and  maintain  a  separate 
office  for  receiving  deposits  and  paying  checks,  it  could  as  well  establish  as 
many  of  such  auxiliary  cash  rooms  in  the  city  of  its  corporate  residence 
as  its  business  might  require ;  and,  indeed,  the  entire  business  of  the 
bank  may  be  parceled  out  and  conducted  in  the  same  way  all  over  the  city. 

The  Supreme  Court  of  the  United  States,  in  the  case  of 

Armstrong  v.  Second  K^ational  Bank  of  Springfield  (38  Fed. 

Rep.,  886),  involving,  among  other  things,  the  question  of  the 

right  of  a  national  bank  to  cash  a  check  elsewhere  than  at  its 

banking  house,  held  that  — 

Under  this  section  (5190)  it  certainly  would  not  be  competent  for  a 
national  bank  to  provide  for  the  cashing  of  checks  upon  it  at  any  otiier 
place  than  at  its  office  or  banking  house. 

If,  therefore,  it  is  unlawful  for  a  national  bank  to  cash  a 
check  elsewhere  than  at  its  banking  house,  it  is  likewise  un- 
lawful for  it  to  discount  notes  or  to  receive  deposits  elsewhere, 
for  one  is  as  much  a  part  of  the  "^  usual  business  "  of  a  bank 
as  the  other.  While  it  is  obviously  impossible  for  a  bank  to 
transact  its  entire  business  within  the  four  walls  of  any  single 
building  it  is  not  held  that  the  law  contemplates  that  the 
"  entire  business,"  as  distinguished  from  its  "  usual  business," 
shall  be  transacted  in  its  banking  house. 

In  the  case  of  The  Merchants  National  Bank  of  Boston  v. 

The  State  N"ational  Bank  (10  Wall.,  604),  it  was  held  in  this 

connection  that  — 

The  provision  requiring  the  "  usual  business  "  of  the  association  to  lie 
transacted  "  at  an  office  or  banking  house  specified  in  its  organization^cer- 


Banking.  715 

tificate  "  must  be  construed  reasonably,  and  a  part  of  the  legitimate  busi- 
ness of  the  association  which  can  not  be  transacted  at  the  banking  house 
may  be  done  elsewhere. 

The  question  involved  in  this  case  "was  the  right  of  the 
bank's  officers  to  purchase  gold  elsewhere  than  at  its  banking- 
house,  and  the  court  held  that — 

Tlie  gold  must  necessarily  have  been  bought,  if  at  all,  at  the  buying  or 
selling  bank,  or  at  some  third  locality.  The  power  to  pay  was  vital  to  the 
power  to  buy,  and  inseparable  from  it. 

The  "  legitimate  business "  of  a  bank,  therefore,  which  a 
reasonable  construction  of  the  law  would  permit  to  be  done 
elsewhere  than  at  its  banking  house  would  seem  to  be  restricted 
to  transactions  similar  in  character  to  that  involved  in  the 
decision  quoted,  and  not  the  ordinary  and  usual  business  of 
receiving  deposits,  and  cashing  checks. 

While  the  national-bank  act  does  not  in  express  terms  pro- 
hibit the  establishment  and  maintenance  of  branch  banks  or 
agencies  by  associations  of  primary  organization,  the  implica- 
tion to  that  effect  is  clear,  and,  the  courts  have  held  that  what 
is  implied  is  as  effective  as  that  which  is  expressed. 

That  the  act  does  not  contemplate  the  operation  of  branch 
banks  by  national  banks  of  primary  organization  is  evidenced 
by  the  fact  that  in  1892  a  special  act  was  approved  authorizing 
the  operation  of  a  branch  by  a  Chicago  national  bank  on  the 
World's  Fair  grounds.  In  1901  similar  legislation  was  en- 
acted by  Congress  in  connection  with  the  Louisiana  Purchase 
Exposition,  held  in  1904. 

SAVINGS    DEPARTMENT. 

There  does  not  appear  to  be  anything  in  the  national-bank 
act  Avhich  authorizes  or  prohibits  the  operation  of  a  savings 
department  by  a  national  bank. 

Many  national  banks  pay  interest  on  deposits,  the  receipt 
of  such  deposit  being  evidenced  either  by  entries  in  the  pass 
books  of  the  depositors  or  by  issue  of  certificates  of  deposit, 
as  may  be  preferred.  Deposits  of  this  character  must  be 
shown  in  the  reports  of  the  bank  and  loaned  in  the  manner 
provided  by  the  national  bank  act.  This  would  prevent  a 
national  bank  from  accepting  real-estate  collaterals  which  are 
"deemed  judicious  for  savings  banks.     All  deposits,   however, 


716  AppE^'DIx. 

ill  a  national  bank  are  payable  on  demand,  except  when  made 
the  subject  of  special  contract,  but  the  right  of  a  bank  to  make 
a  contract  of  that  nature  is  a  matter  for  judicial  determination. 
The  expediency  of  a  national  banking  association,  organized 
for  the  purpose  of  doing  a  business  of  discount  and  deposit, 
engaging  in  the  business  of  a  savings  bank  is  one  for  consider- 
ation and  determination  bv  the  board  of  directors. 


IXFOEMATIOX 

Respecting   United    States    Coix,    Paper    Cureexcy   axd 
Production  of  Precious  Metals,  etc. 

[The  information  here  obtained  is  taken  from  the  United  States  Treasury 
Department  Circular  Xo.  72,  which  Avas  authorized  and  directed  to  he 
issued  by  the  Hon.  Leslie  M.  Shaw,  Secretary  Treasury.] 

SUMMARY  O'F  MONETARY  EVENTS   SINCE    17S6. 

1 786. —  Establishment  of  the  double  standard  in  the  United 
States  with  a  ratio  of  1  to  15.25  ;  that  is,  on  the  basis  of  123.131r 
grains  of  fine  gold  for  the  half  eagle,  or  $5  piece,  and  375.61: 
grains  of  fine  silver  for  the  dollar,  without  anv  actual  coinage. 

1192. —  Adoption  of  the  ratio  of  1  to  15  and  establishment 
(if  a  mint  with  free  and  gi-atuitous  coinage  in  the  United  States ; 
the  silver  dollar  equal  to  37li  grains  fine,  the  eagle  to  247-1- 
grains  fine. 

1S03. —  Establishment  of  the  double  standard  in  France  on 
the  basis  of  the  ratio  of  1  to  15^,  notwithstanding  the  fact  that 
the  market  ratio  was  then  about  1  to  15. 

1810. —  Introduction  of  the  silver  standard  in  Russia  on  the 
basis  of  the  ruble  of  17.99  grams  of  fine  silver,  followed  in  1871 
bv  the  coinage  of  imperials,  or  gold  pieces  of  5  rubles,  of  5.998 
grams;  therefore,  with  a  ratio  of  1  to  15.  This  ratio  was 
changed  by  the  increase  of  the  imperial  to  5  rubles  15  copecks, 
and  later  to  1  to  15.45. 

1815. —  Great  depreciation  of  paper  money  in  England, 
reaching  26i  per  cent,  in  May.  Course  of  gold,  £5  6s.,  and  of 
silver,  7l7d.  per  ounce  standard.  Tn  December  the  loss  was 
only  6  per  cent;  gold  at  this  period  was  quoted  at  £4  3s.,  and 
silver  at  64d. 


Baxkixg.  717 

1816. —  Abolition  of  the  double  standard  in  England,  which 
had  had  as  its  basis  the  ratio  of  1  to  15,21,  and  adoption  of  the 
gold  standard  on  the  basis  of  the  pound  sterling  at  7.322  grams 
fine  in  weight. 

Coinage  of  divisional  money  at  the  rate  of  66d.  per  ounce. 
Extreme  prices,  £4  2s.  for  gold  and  64d.  for  silver ;  in  January, 
£3  18s.  6d.,  and  SO^d,  in  December. 

1816. —  Substitution  for  the  ratio  of  1  to  15.5  in  Holland, 
established  by  a  rather  confused  coinage,  of  the  ratio  of  1  to 
15|. 

1819. — Abolition  of  forced  currency  in  England.  Price  of 
gold,  £3  17s.  lOid.,  and  of  silver,  62d.^  per  ounce  in  October, 
against  £4  Is.  6d.  and  67d.  in  February. 

1832. —  Introduction  of  the  monetary  system  of  France  in 
Belgium,  with  a  decree  providing  for  the  coinage  of  pieces  of 
20  and  40  francs,  which,  however,  were  not  stamped.  Silver, 
59fd. 

1834. —  Substitution  of  the  ratio  of  1  to  16  for  that  of  1  to 
15  in  the  United  States  by  reducing  the  weight  of  the  eagle, 
ten-dollar  gold  piece,  from  270  grains  to  258  grains. 

In  1837  the  fineness  of  the  United  States  gold  coins  was 
raised  from  .899,225  to  .900,  and  the  silver  coins  from  .892,4 
to  .900,  giving  a  ratio  of  1  to  15.988  and  fixing  the  standard 
weight  of  the  silver  dollar  at  41 2^  gTains.     Silver,  59Yf^d. 

1835. — Introduction  of  the  company  rupee,  a  piece  of  silver 
weighing  165  gTains  fine,  in  India  in  place  of  the  sicca  rupee. 
Creation  of  a  trade  coin  —  the  mohur,  or  piece  of  15  rupees  — 
containing  165  grains  of  fine  gold.     Silver,  59y^d. 

18Jt4. — Introduction  of  the  double  standard  in  Turkey,  with 
Ihe  ratio  of  1  to  15.10.     Silver,  59^d. 

18Jt'7. —  Abolition  of  the  double  standard  in  Holland  by  the 
introduction  of  the  silver  standard  on  the  basis  of  a  1-florin 
piece  0.945  grams  fine,  the  coinage  of  which  had  already  been 
decreed  in  1839.     Silver,  5 9|id. 

181f'7. —  Discovery  of  the  gold  mines  in  California. 

1848. —  Coinage  in  Belgium  of  pieces  of  10  and  25  francs  in 
gold,  a  shade  too  light.  These  pieces  were  demonetized  and 
withdrawn  from  circulation  in  1884.     Silver,  59id. 

'  Tlie  price  of  silver  given  hereafter  represents  the  average  rate  per 
ounce  standard  —  that  is.  the  mean  between  the  highest  price  and  the 
lowest  price  quoted  during  the  year. 


TlS  Appendix. 

18J^8. —  Eeplacing  the  ratio  of  1  to  16  iu  Spain,  ■wliicli  had 
been  in  force  since  1786,  by  that  of  1  to  15.77. 

1850. —  Introduction  of  the  French  monetary  system  in 
Switzerland  without  any  actual  coinage  of  gold  pieces.     Silver, 

1851. —  Dibcovery  of  the  gold  mines  of  Australia. 

1853. —  Lowering  of  the  weight  of  silver  pieces  of  less  value 
than  $1  to  the  extent  of  7  per  cent  in  the  United  States,  and 
limitation  of  their  legal-tender  power  to  $5.     Silver,  61^d. 

1853. —  ^Maximum  of  the  production  of  gold  reached  in 
California  when  it  amounted  to  $65,000,000. 

185J/-. —  Introduction  of  the  gold  standard  in  Portugal  on 
the  basis  of  the  cro\^'n  of  16.257  grams  fine.  Before  this  period 
the  country  had  the  silver  standard,  with  a  rather  large  circula- 
tion of  gold  coins  stamped,  on  the  basis  of  1  to  15^  in  1835 
and  1  to  161  in  1847.     Silver,  ei^d. 

185J/.. —  Modification  of  the  ratio  of  1  to  15.77  in  Spain  by 
raising  it  to  1  to  15.48,  and  by  lowering  the  piaster  from  23.49 
gi'ams  to  23.36  grams  fine. 

185Jf.. —  Introduction  of  the  silver  standard,  as  it  existed  in 
the  mother  country,  in  Java,  in  place  of  the  ideal  Javanese 
money,  and  coinage  of  colonial  silver  pieces. 

1857. — Conclusion  of  a  monetary  treaty  between  Austria  and 
the  German  States,  in  accordance  with  which  1  pound  of  fine 
silver  (one-half  a  kilogram)  Avas  stamped  into  30  thalers  or  52| 
florins  of  south  Germany,  or  45  Austrian  florins,  resulting  in 
1  thaler  equaling  If  German  florins  or  1^  Austrian  florins. 
Silver,  61fd. 

1861. —  Law  decreeing  the  coinage  of  gold  pieces  of  10  and 
20  francs  exactly  equal  to  French  coins  of  the  same  denomina- 
tion in  Belgium.     Silver,  61fd. 

1862. —  Adoption  of  the  French  Monetary  system  by  Italy. 
Silver,  Ql^(\. 

1865. —  Formation  of  the  Latin  Union  between  France,  Bel- 
gium, Switzerland,  and  Italy  on  the  basis  of  a  ratio  of  1  to  150. 
Silver,  61iVcl' 

1868. —  Adoption  of  the  French  monetary  system  by  Eon- 
mania,  with  the  exclusion  of  the  5-franc  silver  piece,  which  was, 
however,  stamped  in  1881  and  1883.     Silver,  60id. 

1868. —  Admission  of  Greece  into  the  Latin  Union.     The 


Baxking.  719 

definite  and  universal  introduction  of  the  French  monetary 
system  into  the  country  was  effected  only  in  1883. 

1S68. —  Adoption  of  the  French  monetary  system,  with  the 
peseta  or  franc  as  the  unit,  by  Spain.  The  coinage  of  gold 
alphonses  d'or  of  25  jjesetas  was  made  only  in  1876. 

1871. —  Replacing  of  the  silver  standard  in  Germany  by  the 
gold  standard.  Coinage  in  1873  of  gold  pieces  of  5,  10,  and  20 
mark  pieces,  the  latter  weighing  7.168  grams  fine.  Silver, 
60id. 

1871. —  Establishment  of  the  double  standard  in  Japan  with 
the  ratio  of  1  to  16.17  by  the  coinage  of  the  gold  yen  of  1.667 
grams  and  of  the  silver  yen  of  26.956  grams,  both  with  a  fine- 
ness of  .900. 

1873. —  Increase  of  the  intrinsic  value  of  the  subsidiary  coins 
of  the  United  States.  Replacing  of  the  double  standard  by  the 
gold  standard.  Reduction  of  the  cost  of  coinage  of  gold  to 
one-fifth  per  cent,  the  total  abolition  of  which  charge  was  de- 
creed in  1875.  Creation  of  a  trade  dollar  of  420  grains  with  a 
fineness  of  .900.     Silver,  59^(1. 

1873. —  Suspension  of  the  coinage  of  5-franc  pieces  in  Bel- 
gium. 

1873. —  Limitation  of  the  coinage  of  5-francs  on  individual 
account  in  France. 

1873. —  Suspension  of  the  coinage  of  silver  in  Holland. 

1873. —  Formation  of  the  Scandinavian  Monetary  Union. 
Replacing  of  the  silver  standard  in  Denmark,  Sweden,  and 
Xorway  by  that  of  gold  on  the  basis  of  the  krone.  Coinage  of 
pieces  of  10  and  20  kroner,  the  latter  weighing  8.961  grams, 
with  a  fineness  of  .900. 

187 Ji-. —  Introduction  of  the  system  of  contingents  for  the 
coinage  of  5-franc  silver  pieces  in  the  Latin  Union.     Silver, 

1875. —  Suspension  of  the  coinage  of  silver  on  individual 
account  in  Italy.     Silver,  56|d. 

1875. —  Suspension  of  the  coinage  of  silver  on  account  of 
the  Dutch  colonies. 

1875. —  Introduction  of  the  double  standard  in  Holland  on 
the  basis  of  the  ratio  of  1  to  15.62  by  the  creation  of  a  gold 
piece  of  10  florins,  weighing  5.048  grams  fine,  with  the  mainte- 
nance of  the  suspension  of  the  coinage  of  silver. 


720  Appendix. 

1876. —  Great  fluctuations  in  the  price  of  silver,  which  de- 
clined to  -iGfd.,  representing  the  ratio  of  1  to  20.172,  in  July. 
Recovery,  in  December,  to  SS^d-     Average  price,  52f  d. 

1877. — ■  Coinage  of  5-franc  silver  pieces  by  Spain  continued 
later,  notwithstanding  the  decline  of  silver  in  the  market.  Sil- 
ver, 54f  d. 

1877. —  Replacing  of  the  double  standard  in  Finland  by 
that  of  gold  on  the  basis  of  the  mark  or  franc. 

1878. —  Act  of  United  States  Congress  providing  for  the 
purchase,  from  time  to  time,  of  silver  bullion,  at  the  market 
price  thereof,  of  not  less  than  $2,000,000  worth  per  month  as 
a  minimum,  nor  more  than  $4,000,000  worth  per  month  as  a 
maximum,  and  its  coinage  as  fast  as  purchased  into  silver  dol- 
lars of  412^  grains.  The  coinage  of  silver  on  private  account 
prohibited.     Silver,  62x\d. 

1878. —  Meeting  of  the  first  international  monetary  confer- 
ence in  Paris.  Prolongation  of  the  Latin  Union  to  January 
1,  1886. 

1879. —  Suspension  of  the  sales  of  silver  by  Germany.  Sil- 
ver, Slid. 

1881. —  Second  international  monetary  conference  in  Paris. 
Silver,  51ild. 

1885. —  Introduction  of  the  double  standard  in  Egypt.  Sil- 
ver, 48fd. 

1885. —  Prolongation  of  the  Latin  L'nion  to  January  1,  1891. 

1886. —  Great  decline  in  the  price  of  silver,  which  fell  in 
August  to  42d.,  representing  a  ratio  of  1  to  22.5,  and  recovery 
in  December  to  46d.  Modification  of  the  coinage  of  gold  and 
silver  pieces  in  Russia.     Silver,  45§d. 

1887. —  Retirement  of  the  trade  dollars  by  the  Government 
of  the  L^nited  States  in  February.  Demonetization  of  the 
Spanish  piasters,  known  as  Ferdinand  Carolus,  whose  reim- 
bursement at  the  rate  of  5  pesetas  ended  on  March  11.  i^ew 
decline  of  silver  in  March  to  44d.,  representing  the  ratio  of 
1  to  21.43.     Silver,  44td. 

1890.— Vnited  States  —  Repeal  of  tlie  act  of  February  28, 
1878,  commonly  known  as  Bland-Allison  law,  and  substitu- 
tion of  authority  for  purchase  of  4,500,000  fine  ounces  of  silver 
each  month,  to  be  paid  for  by  issue  of  Treasury  notes  payable 
in  coin.     (Act  of  July  14,  1S90.)     Demonetization  of  25,000,- 


Banking.  T21 

000  lei  in  pieces  of  5  lei  in  Eoumania  in  consequence  of  the 
introduction  of  the  gold  standard  by  the  law  of  October  27. 
Silver,  47i|d. 

1891. —  Introduction  of  the  French  monetary  system  in 
Tunis  on  the  basis  of  the  gold  standard.  Coinage  of  national 
gold  coins  and  billon.     Silver,  45yVd. 

1892. —  Replacing  of  the  silver  standard  in  Austria-Hun- 
gary by  that  of  gold  by  the  law  of  August  2.  Coinage  of  pieces 
of  20  crowns,  containing  6,098  grams  fine.  The  croA\Ti  equals 
one-half  florin.  Meeting  of  the  third  international  monetary 
conference  at  Bnissels.  Production  of  gold  reaches  its  maxi- 
mum, varying  between  675,000,000  and  734,000,000  francs. 
Silver,  39Hd. 

189 S. —  Susj)ension  of  the  coinage  of  silver  in  British  India 
and  of  French  trade  dollars  on  individual  account.  Panic  in 
the  silver  market  in  July  in  London,  when  the  price  fell  below 
30d.,  representing  the  ratio  of  1  to  31.43.  Repeal  of  the  pur- 
chasing clause  of  the  act  of  July  14,  1890,  by  the  Congress  of 
the  United  States. 

1895. —  Adoption  of  the  gold  standard  by  Chile. 

1895. —  Russia  decides  to  coin  100,000,000  gold  rubles  in 
1896. 

1896. —  Costa  Rica  adopts  the  gold  standard. 

1896. —  Russia  decides  to  resume  specie  payments. 

1897. —  Adoption  of  the  gold  standard  by  Russia  and  Japan. 

1897. —  Peru  suspends  the  coinage  of  silver  and  prohibits  its 
importation. 

1899. —  Adoption  of  the  gold  standard  by  India. 

MONETARY   SYSTEM   OF   THE   UNITED   STATES. 

In  1786  the  Congress  of  the  Confederation  chose  as  the 
monetary  imit  of  the  United  States  the  dollar  of  375.64  grains 
of  pure  silver.  This  unit  had  its  origin  in  the  Spanish  piaster 
or  milled  dollar,  which  constituted  the  basis  of  the  metallic 
circulation  of  the  English  colonies  in  America.  It  was  never 
coined,  there  being  at  that  time  no  mint  in  the  United  States. 

The  act  of  April  2,  1792,  established  the  first  monetary  sys- 
tem of  the  United  States.  The  bases  of  the  system  were  :  The 
gold  dollar  or  unit,  containing  24.75  grains  of  pure  gold,  and 
stamped  in  pieces  of  $10,  $5,  and  $2^,  denominated,  respectively, 
46 


722  Appendix. 

eagles,  half  eagles,  and  quarter  eagles ;  the  silver  dollar  or  unit, 
containing  371.25  grains  of  pure  silver.  A  mint  was  estab- 
lished. The  coinage  was  unlimited,  and  there  was  no  mint 
charge.  The  ratio  of  gold  to  silver  in  coinage  was  1  to  15.  Both 
gold  and  silver  were  legal  tender.     The  standard  was  double. 

The  act  of  1792  undervalued  gold,  which  was  therefore  ex- 
ported. The  act  of  June  28,  1834,  was  passed  to  remedy  this, 
bj  changing  the  mint  ratio  between  the  metals  to  1  to  16.002, 
This  latter  act  fixed  the  weight  of  the  gold  dollar  at  25.8  gi'ains, 
but  lowered  the  fineness  from  0.916f  to  0.899225.  The  fine 
weight  of  the  gold  dollar  was  thus  reduced  to  23.2  grains.  The 
act  of  183-1  undervalued  silver,  as  that  of  1792  had  under- 
valued gold,  and  silver  was  attracted  to  Europe  by  the  more 
favorable  ratio  of  1  to  15|.  The  act  of  January  18,  1837,  was 
passed  to  make  the  fineness  of  the  gold  and  silver  coins  uniform. 
The  legal  weight  of  the  gold  dollar  was  fixed  at  25.8  grains  and 
its  fine  weight  at  23.22  grains.  The  fineness  was  thereforq 
changed  by  this  act  to  0.900  and  the  ratio  to  1  to  15.988^. 

Silver  continued  to  be  exported.  The  act  of  February  21, 
1853,  reduced  the  weight  of  the  silver  coins  of  a  denomination 
less  than  $1,  which  the  acts  of  1792  and  1837  had  made  exactly 
proportional  to  the  weight  of  the  silver  dollar,  and  provided  that 
they  should  be  legal  tender  to  the  amount  of  only  $5.  Under 
the  acts  of  1792  and  1837  they  had  been  full  legal  tender. 
By  the  act  of  1853  the  legal  weight  of  the  half  dollar  was  re- 
duced to  192  grains  and  that  of  the  other  fractions  of  a  dollar 
in  proportion.  The  coinage  of  the  fractional  parts  of  the  dollar 
was  reserved  to  the  Government. 

The  act  of  February  12,  1873,  provided  that  the  unit  of 
value  of  the  United  States  should  be  the  gold  dollar  of  the 
standard  weight  of  25.8  grains,  and  that  there  should  be 
coined  besides  the  following  gold  coins:  A  quarter  eagle,  or 
2|-dollar  piece;  a  3-dollar  piece;  a  half  eagle,  or  5-dollar  piece; 
an  eagle,  or  10-dollar  piece,  and  a  double  eagle,  or  20-dollar 
piece,  all  of  a  standard  weight  proportional  to  that  of  the 
dollar  piece.  These  coins  were  made  legal  tender  in  all  pay- 
ments at  their  nominal  value  when  not  below  the  standard 
weight  and  limit  of  tolerance  provided  in  the  act  for  the  single 
piece,  and  when  reduced  in  weight  they  should  be  legal  tender 
at  a  valuation  in  proportion  to  their  actual  weight.     The  silver 


Bankhstg.  723 

coins  provided  for  by  the  act  were  a  trade  dollar,  a  half  dollar, 
or  50-cent  piece,  a  quarter  dollar,  and  a  10-cent  piece;  the 
weight  of  the  trade  dollar  to  be  420  gi'ains  troy;  the  half  dol- 
lar 12^  grams;  the  quarter  dollar  and  the  dime,  respectively, 
one-half  and  one  fifth  of  the  weight  of  the  half  dollar.  These 
silver  coins  were  made  legal  tender  at  their  nominal  value  for 
any  amount  not  exceeding  $5  in  any  one  payment.  The  charge 
for  converting  standard  gold  bullion  into  coin  was  fixed  at 
one-fifth  of  1  per  cent.  Owners  of  silver  bullion  were  al- 
lowed to  deposit  it  at  any  mint  of  the  United  States,  to  be 
formed  into  bars  or  into  trade  dollars,  and  no  deposit  of  silver 
for  other  coinage  was  to  be  received. 

Section  II  of  the  joint  resolution  of  July  22,  1876,  recited 
that  the  trade  dollar  should  not  thereafter  be  legal  tender, 
and  that  the  Secretary  of  the  Treasury  should  be  authorized 
to  limit  the  coinage  of  the  same  to  an  amount  sufficient  to 
meet  the  export  demand  for  it.  The  act  of  February  19, 
1887,  retired  the  trade  dollar  and  prohibited  its  coinage.  That 
of  September  26,  1890,  discontinued  the  coinage  of  the  1-dol- 
lar  and  3-dollar  gold  pieces. 

The  act  of  February  28,  1878,  directed  the  coinage  of  silver 
dollars  of  the  weight  of  412^  grains  troy,  of  standard  silver, 
as  provided  in  the  act  of  January  18,  1837,  and  that  such  coins, 
with  all  standard  silver  dollars  theretofore  coined,  should  be 
legal  tender  at  their  nominal  value  for  all  debts  and  dues, 
public  and  private,  except  where  otherwise  expressly  stipulated 
in  the  contract. 

The  Secretary  of  the  Treasury  was  authorized  and  directed 
by  the  first  section  of  the  act  to  purchase  from  time  to  time 
^silver  bullion  at  the  market  price  -thereof,  .not  less  than 
$2,000,000  worth  nor  more  than  $4,000,000  worth  per  month, 
and  to  cause  the  same  to  be  coined  monthly,  as  fast  as  pur- 
chased, into  such  dollars.  A  subsequent  act,  that  of  July  14, 
1890,  enacted  that  the  Secretary  of  the  Treasury  should  pur- 
chase silver  bullion  to  the  aggregate  amount  of  4,500,000 
ounces,  or  so  much  thereof  as  might  be  offered,  each  month, 
at  the  market  price  thereof,  not  exceeding  $1  for  371.25  grains 
of  pure  silver,  and  to  issue  in  payment  thereof  Treasury  notes 
of  the  United  States,  such  notes  to  be  redeemable  by  the  Gov- 
ernment, on  demand,  in  coin,  and  to  be  legal  tender  in  pay- 


724  Appexdix. 

ment  of  all  debts,  public  and  private,  except  where  otherwise 
expressly  stipulated  in  the  contract.  The  act  directed  the 
Secretary  of  the  Treasury  to  coin  each  mointh  2,000,000 
ounces  of  the  silver  bullion  purchased  under  the  provisions 
of  the  act  into  standard  silver  dollars  until  the  1st  day  of 
July,  1891,  and  thereafter  as  much  as  might  be  necessary  to 
provide  for  the  redemption  of  the  Treasury  notes  issued  un- 
der the  act.  The  purchasing  clause  of  the  act  of  July  14, 
1890,  was  repealed  by  the  act  of  November  1,  1893. 

The  act  of  June  9,  1879,  made  the  subsidiary  silver  coins 
of  the  United  States  legal  tender  to  the  amount  of  $10.  The 
minor  coins  are  legal  tender  to  the  amount  of  25  cents. 


Coins  of  the  United  States,  Authoeity  foe  Coixixg,  axd 
Changes  in  "Weight  and  Fineness  and  Amount  Coined. 

GOLD  coins. 

DOUBLE  EAGLE. 

Authorized  to  be  coined,  act  of  March  3,  1849. 

AVeight,  516  grains;  fineness,  .900. 

Total  amount  coined  to  June  30,  1900,  $1,538,826,060.  • 


Authorized  to  be  coined,  act  of  April  2,  1792. 
Weight,  270  grains;  fineness,  .916|. 
'Weight  changed,  act  of  June  28,  1834,  to  258  grains. 
Fineness  changed,  act  of  June  28,  1834,  to  .899^225. 
Fineness  changed,  act  of  January  18,  1837,  to  .900. 
Total  amount  coined  to  June  30,'  1900,  $319,001,160. 

HALF     EAGLE. 

Authorized  to  be  coined,  act  of  April  2,  1792. 
"\Yeiglit,  135  grains;  fineness,  .916|. 
Weight  changed,  act  of  June  28,  1834,  to  129  grains. 
Fineness  changed,  act  of  June  28,  1834,  to  .899,225. 
Fineness  changed,  act  of  January  18,  1837,  to  .900. 
Total  amount  coined  to  June  30,  1900,  $259,066,545. 


Banking.  725 

QUARTER     EAGLE. 

Authorized  to  be  coined,  act  of  April  2,  1792. 
"Weight,  67.5  grains;  fineness,  .916j. 
"Weight  changed,  act  of  June  28,  1834,  to  64.5  grains. 
Fineness  changed,  act  of  June  28,  1834,  to  .899,225. 
Fineness  changed,  act  of  January  18,  1837,  to  .900. 
Total  amount  coined  to  June  30,  1900,  $29,015,635. 

THREE-DOLLAR     PIECE. 

Authorized  to  be  coined,  act  of  February  21,  1853. 
"^^eight,  77.4  grains;  fineness,  .900. 

Total  amount  coined  to  September  26,  1890,  $1,619,376. 
Coinage  discontinued,   act  of  September  26,   1890. 

ONE     DOLLAR. 

Authorized  to  be  coined,  act  of  March  3,  1849. 

"Weight,  25.8  grains;  fineness,  .900. 

Total  amount  coined  to  September  26,  1890,  $19,499,337. 

Coinage  discontinued,  act  of  September  26,  1890. 

SILVER  COINS. 
DOLLAR. 

Authorized  to  be  coined,  act  of  April  2,  1792. 
"Weight,  416  grains;  fineness,  .892,4. 

"Weight  changed,  act  of  January  18,  1837,  to  412^  grains. 
Fineness  changed,  act  of  January  18,  1837,  to  .900. 
Coinage  discontinued,  act  of  February  12,  1873. 
Total  amount  coined  to  February  12,  1873,  $8,031,238. 
Coinage  reauthorized,  act  of  February  28,  1878. 
Amount   coined   from   March   1,    1878,    to   June    30,    1900, 
$498,496,215. 

Total  amount  coined  to  June  30,  1900,  $506,527,453. 

LAFAYETTE     DOLLAR. 

Authorized  to  be  coined  by  act  of  March  3,  1899. 
"Weight,  412^  grains;  fineness,  .900. 
Total  amount  coined,  $50,000. 

TRADE     DOLL,AR. 

Authorized  to  be  coined,  act  of  February  12,  1873. 
"Weight,  420  grains;  fi.neness,  .900. 


^726  Appendix. 

Coinage  limited  to  export  demand,  joint  resolution  July  22, 
1876. 

Coinage  discontinued,  act  of  February  19,  1887. 
Total  amount  coined,  $35,965,924. 

HALF     DOLLAB. 

Authorized  to  be  coined,  act  of  April  2,  1792. 
Weight,  208  grains;  fineness,  .892,4. 

Weight  changed,  act  of  January  18,  1837,  to  206^  grains. 
Fineness  changed,  act  of  January  18,  1837,  to  .900. 
Weight  changed,  act  of  February  21,  1853,  to  192  grains. 
Weight  changed,  act  of  February  12,  1873,  to  12^  grams, 
or  192.9  grains. 

Total  amount  coined  to  June  30,  1900,  $144,988,509. 

COLXTMBIAN     HALF     DOLLAR. 

Authorized  to  be  coined,  act  of  August  5,  1892. 
Weight,  192.9  grains;  fineness,  .900. 
Total  amount  coined,  $2,501,052.50. 

QUARTER     DOLLAR. 

Authorized  to  be  coined,  act  of  April  2,  1792. 
Weight,  104  grains;  fineness,  .892,4. 

Weight  changed,  act  of  January  18,  1837,  to  1031  grains. 
Fineness  changed,  act  of  January  18,  1837,  to  .900. 
Weight  changed,  act  of  February  21,  1853,  to  96  grains. 
Weight  changed,  act  of  February  12,  1873,  to  6|  grams, 
or  96.45  grains. 

Total  amount  coined  to  June  30,  1900,  $63,763,021.50. 

COLUMBIAN     QUARTER     DOLLAR. 

Authorized  to  be  coined,  act  of  March  3,  1893. 
Weight,  96.45  grains;  fineness,  .900. 
Total  amount  coined,  $10,005.75. 

TWENTY-CENT     PIECE. 

Authorized  to  be  coined,  act  of  March  3,  1875. 
Weight,  5  grams,  or  77.16  grains;  fineness,  .900. 
Coinage  discontinued,  act  of  May  2,  1878. 
Total  amount  coined,  $271,000. 


Baxkixg.  727 

DIME. 

Authorized  to  be  coined,  act  of  April  2,  1792. 
Weight,  41.6  grains  ;  fineness,  .892,1. 
AVeight  changed,  act  of  January  18,  1837,  to  41^  grains. 
Fineness  changed,  act  of  January  18,  1837,  to  .900. 
"Weight  changed,  act  of  February  21,  1853,  to  38.4  grains. 
Weight  changed,  act  of  February  12,  1873,  to  2^  grams,  or 
138.58  grains. 

Total  amount  coined  to  June  30,  1900,  $35,931,861.20. 

HALF     DIME. 

Authorized  to  be  coined,  act  of  April  2,  1792. 

Weight,  20.8  grains;  fineness,  .892,4. 

Weight  changed,  act  of  January  18,  1837,  to  20t  grains. 

Fineness  changed,  act  of  January  18,  1837,  to. 900. 

Weight  changed,  act  of  February  21,  1853,  to  19.2  grains. 

Coinage  discontinued,  act  of  February  12,  1873. 

Total  amount  coined,  $4,880,219.40.' 

THBEE-CEXT     PIECE. 

Authorized  to  be  coined,  act  of  March  3,  1851. 
Weight,  12f  grains;  fineness,  .750. 
Weight  changed,  act  of  March  3,  1853,  to  11.52  grains. 
Fineness  changed,  act  of  March  3,  1853,  to  .900. 
Coinage  discontinued,  act  of  February  12,  1873. 
Totaramount  coined,  $1,282,087.20. 

illXOR  COIXS. 
FIVE    CENT     (NICKEL). 

Authorized  to  be  coined,  act  of  May  16,  1866. 
Weight,  77.16  grains;  composed  of  75  per  cent  copper  and 
25  per  cent  nickel. 

Total  amoimt  coined  to  June  30,  1900,  $17,967,308.10. 

THREE     CENT     (  XICKEL )  . 

Authorized  to  be  coined,  act  of  March  3,  1865. 
Weight,  30  grains;  composed  of  75  per  cent  copper  and  25 
per  cent  nickel. 

Coinage  discontinued,  act  of  September  26,  1890. 
Total  amount  coined,  $941,349.48. 


728  Appendix. 

TWO     CENT     (bronze). 

Authorized  to  be  coined,  act  of  April  22,  1864. 
Weight,  96  grains;  composed  of  95  per  cent  copper  and  5 
per  cent  tin  and  zinc. 

Coinage  discontinued,  act  of  February  12,  1873. 
Total  amount  coined,  $912,020. 

CEXT     (COPPER). 

Authorized  to  be  coined,  act  of  April  2,  1792. 

"Weight,  264  grains. 

Weight  changed,  act  of  January  14^  1793,  to  208  grains. 

Weight  changed  by  proclamation  of  the  President,  January 
26,  1796,  in  conformity  with  act  of  March  3,  1795,  to  168 
grains. 

Coinage  discontinued,  act  of  February  21,  1857. 

Total  amount  coined^  $1,562,887.44. 

CENT     (NICKEL). 

Authorized  to  be  coined,  act  of  February  21,  1857. 
Weight,  72  grains;  composed  of  88  per  cent  copper  and  12 
per  cent  nickel. 

Coinage  discontinued,  act  of  April  22,  1864. 
Totpl  amount  coined,  $2,007,720. 

CENT    (bronze). 

Coinage  authorized,  act  of  April  22,  1864. 
Weight,  48  grains;  composed  of  95  per  cent  copper  and  5 
per  cent  tin  and  zinc. 

Total  amount  coined  to  June  30,  1900,  $10,072,758.59. 

HALF     CENT     (  COPPER  )  . 

Authorized  to  be  coined,  act  of  April  2,  1792. 

Weight,  132  grains. 

Weight  changed,  act  of  January  14,  1793,  to  104  grains. 

Weight  changed  by  proclamation  of  the  President,  January 
26,  1796,  in  conformity  with  act  of  March  3,  1795,  to  84 
grains. 

Coinage  discontinued,  act  of  February  21,  1857. 

Total  amount  coined,  $39,926.11. 


Backing.  "                 729 

TOTAL     COIXAGES. 

Gold  $2,167,088,113  00 

Silver 796,171,133  55 

Minor 33,503,969  72 

Grand   total    $2,996,763,216  27 


THE   STAXDAKD  OF  VALUE. 

In  providing  for  the  coinage  of  the  precious  metals  Con- 
gress established,  by  the  act  of  April  2,  1792,  the  standard  of 
value,  consisting  of  certain  gold  and  silver  coins,  at  a  ratio  of 
15  to  1  —  that  is  to  sav,  the  value  of  an  ounce  of  fine  gold 
was  in  effect  declared  to  be  equal  to  the  value  of  fifteen  ounces 
of  fine  silver.  A  list  of  the  coins  authorized  by  the  act  of 
April  2,  1792,  vitli  their  weights  and  fineness,  will  be  found  in 
another  place.  Both  gold  and  silver  coins  were  declared  to  be 
standards. 

The  ratio  of  15  to  1  was  adopted  in  pursuance  of  the  investi- 
gations conducted  by  Alexander  Hamilton,  Secretary  of  the 
Treasury^  who,  in  his  report  upon  the  subject,  said  that  15  to  1 
was  a  near  approximation  to  the  commercial  value  of  the  two 
metals.  It  was  soon  discovered,  however,  that  gold  at  the  ratio 
of  15  to  1  was  undervalued,  and  silver  became  practically  the 
only  metallic  money  available  for  use  in  the  United  States.  In 
1834  the  ratio  was  changed  to  16.002  to  1  and  in  1837  it  was 
changed  to  15.988  to  1.  That  is  the  present  ratio  and  is 
commonly  called  16  to  1.  By  this  change  silver  was  under- 
valued and  gold  came  into  use  in  its  place. 

By  the  act  of  February  12,  1873,  the  coinage  of  the  standard 
silver  dollar  was  discontinued,  and  the  gold  dollar  of  25.8 
grains  of  standard  gold,  .900  fine,  was  declared  to  be  the  unit 
of  value.  Tbe  subsequent  restoration  of  the  coinage  of  silver 
dollars  under  the  act  of  February  28,  1878,  was  on  Government 
account  and  did  not  restore  the  silver  dollar  to  its  former  place 
as  a  standard  of  value. 

But  while  CongTCSs  provided  for  the  so-called  double  or 
bimetallic  standard^  such  double  standard  has  never  been  ef- 
fective in  this  country.  From  1792  to  1834  silver  was  the 
metal  by  which  all  value  were  measured,  and  since  1834  gold 
has  been,  and  still  is,  the  sole  actual  standard. 


730  Appendix. 

coins  axd  paper  cuerency. 

There  are  ten  different  kinds  of  money  in  circulation  in  the 
United  States,  namely,  gold  coins,  standard  silver  dollars,  sub- 
sidiary silver,  gold  certificates,  silver  certificates,  Treasury 
notes  issued  under  the  act  of  July  14,  1890,  United  States 
notes  (also  called  greenbacks  and  legal  tenders),  national  bank 
notes,  and  nickel  and  bronze  coins.  These  forms  of  money  are 
all  available  as  circulation.  AYhile  they  do  not  all  possess  the 
full  legal-tender  quality,  each  kind  has  such  attributes  as  to 
give  it  currency.     The  status  of  each  kind  is  as  follows: 

Gold  coin  is  legal  tender  at  its  nominal  or  face  value  for  all 
debts,  public  and  private,  when  not  below  the  standard  weight 
and  limit  of  tolerance  prescribed  by  law;  and  when  below  such 
standard  and  limit  of  tolerance  it  is  legal  tender  in  proportion 
to  its  weight. 

Standard  silver  dollars  are  legal  tender  at  their  nominal  or 
face  value  in  payment  of  all  debts,  public  and  private,  without 
regard  to  the  amount,  except  where  otherwise  expressly  stipu- 
lated in  the  contract. 

Subsidiary  silver  is  legal  tender  for  amounts  not  exceeding 
$10  in  any  one  payment. 

Treasury  notes  of  the  act  of  July  14,  1890.  are  legal  tender 
for  all  debts,  public  and  private,  except  where  otherwise  ex- 
pressly stipulated  in  the  contract. 

United  States  notes  are  legal  tender  for  all  debts,  public  and 
private,  except  duties  on  imports  and  interest  on  the  public 
debt. 

Gold  certificates,  silver  certificates,  and  nation al-hanh  notes 
are  not  legal  tender,  but  both  classes  of  certificates  are  receiva- 
ble for  all  public  dues,  M'hile  national-bank  notes  are  receiva- 
ble for  all  public  dues  except  duties  on  imports,  and  may  be 
paid  out  by  the  Government  for  all  salaries  and  other  debts  and 
demands  owing  by  the  United  States  to  individuals,  corpora- 
tions, and  associations  within  the  United  States,  except  interest 
on  the  public  debt  and  in  redemption  of  the  national  currency. 
All  national  banks  are  required  by  law  to  receive  the  notes  of 
other  national  banks  at  par. 

The  minor  coins  of  nickel  and  copper  are  legal  tender  to  the 
extent  of  25  cents. 


Baxking.  731 

gold  co'ins. 

The  coinage  of  legal-tender  gold  was  authorized  by  the  first 
•coinage  act  j^assed  by  Congress,  April  2,  1792. 

The  gold  unit  of  value  is  the  dollar,  which  contains  25.8 
grains  of  standard  gold  .900  fine.  The  amount  of  fine  gold  in 
the  dollar  is  23.22  grains,  and  the  remainder  of  the  weight  is 
an  alloy  of  copper.  While  the  gold  dollar  is  the  unit  and 
standard  of  value,  the  actual  coinage  of  the  $1  piece  was  dis- 
continued under  authority  of  the  act  of  September  2'6,  1890. 
Gold  is  now  coined  in  denominations  of  $2.50,  $5,  $10,  and 
«r20,  called  respectively  quarter  eagles,  half  eagles,  eagles,  and 
double   eagles. 

The  total  coinage  of  gold  by  the  mints  of  the  United  States 
from  1792  to  June  30,  1900,  is  $2,167,088,113,  of  which  it  is 
estimated  that  $923,653,462  is  now  in  existence  as  coin  in  the 
United  States,  while  the  remainder,  $1,243,434,651,  represents 
the  excess  of  exports  over  imports  and  the  amount  consumed  in 
the  arts.  The  gold  bullion  now  in  the  United  States  amounts 
to  $112,378,182.56. 

The  basis  for  the  estimate  of  the  amount  of  gold  coin  in  the 
United  States  was  established  in  1873,  when  the  amount  in  the 
vaults  of  the  national  banks  and  in  the  Treasury  was  ascer- 
tained from  reports  to  be  $98,389,864.  To  this  was  added 
$20,000,000  as  an  estimate  of  the  amount  of  gold  in  use  on  the 
Pacific  Coast  and  $10,000,000  as  the  amount  held  by  all  other 
banks  and  by  the  people.  The  amount  thus  ascertained  was 
$128,389,864,  to  which  have  been  added  from  year  to  year 
the  new  coinage  reported  by  the  Director  of  the  Mint,  and  the 
imports  as  shown  by  the  custom-house  reports,  and  from  which 
have  been  deducted  the  exports  and  the  amounts  consumed  in 
the  arts.  It  will  be  seen  that  more  than  one-half  of  the  gold 
coins  struck  at  the  mints  of  the  United  States  have  disappeared 
from  circulation. 

SILVER  COINS. 

The  principal  silver  coin  is  the  dollar,  which  contains  412^ 
grains  of  standard  silver  .900  fine.  The  amount  of  fine  silver 
in  the  dollar  is  37l;j  grains,  and  there  are  41i  grains  of  copper 
alloy.  The  standard  silver  dollar  was  first  authorized  by  the 
act  of  April  2,  1792.     Its  weight  was  416  grains  .892,4  fine. 


732  Appendix. 

It  contained  the  same  quantity  of  fine  silver  as  the  present 
doHar,  whose  weight  and  fineness  were  established  by  the  act 
of  January  18,  ISoT.  The  coinage  of  the  standard  silver  dol- 
lar was  discontinued  b}'  the  act  of  February  12,  1873,  and  it 
was  restored  by  the  act  of  February  28,  1878.  The  total 
amount  coined  from  1792  to  1873  was  $8,031,238,  and  the 
i>mount  coined  fron»  1878  to  June  30',  1900,  was  $-198,406,215. 
The  coinage  ratio  between  gold  and  silver  under  the  act  of 
1792  was  15  to  1,  but  by  the  acts  of  1834  and  1837  it  was 
changed  first  to  16.002  to  1  and  finally  to  15.988  to  1  (com- 
monly called  16  to  1).     This  is  the  present  ratio. 

Of  the  498,496,215  standard  silver  dollars  coined  since  Febru- 
ary, 1878,  1,725,000  are  reported  to  have  been  shipped  to  Cuba, 
Porto  Rico,  and  th-e  Philippines;  there  were  held  in  the  Treas- 
ury June  30,  1900,  $430,341,739,  and  the  amount  outside  the 
Treasury  in  the  United  States  was  $66,429,476.  Silver  cer- 
tificates to  the  amount  of  $408,499,347  are  in  circulation 
against  that  amount  of  the  standard  silver  dollars  held  in  the 
Ireasury.  Of  the  amount  held  in  the  Treasury  $408,499,347 
were  held  for  the  redemption  of  an  equal  amount  of  silver 
certificates  in  circulation;  $6,153,153  were  held  on  account  of 
Treasury  notes  of  1890,  and  $15,689,229  were  held  in  the 
general  cash  as  assets  of  the  Government.  The  commercial 
value  of  an  ounce  of  fine  silver  June  30,  1900,  was  $0.61876, 
and  the  commercial  value  of  the  silver  in  the  silver  dollar  on 
that  date  was  47.857  cents. 

SUBSIDIARY  SILVEE. 

The  silver  coins  of  smaller  denominations  than  one  dollar, 
authorized  by  the  act  of  April  2,  1792,  were  half  dollars, 
quarter  dollars,  dimes,  and  half  dimes.  They  were  the  equiva- 
lent in  value  of  the  fractional  parts  of  a  dollar  which  they  re}t- 
resented  —  that  is,  two  half  dollars  were  equal  in  weight  \o 
one  silver  dollar,  and  so  on.  These  coins  were  full  legal  tender 
when  of  standard  weight,  and  those  of  less  than  full  weigh t^ 
were  legal  tender  at  value  proportional  to  their  respective 
M'eights. 

By  the  act  of  February  21,  1853,  the  weight  of  the  frac- 
tional silver  coins  was  reduced  so  that  the  half  dollar  weighdl 
only  192  gTains,  and  all  the  smaller  denominations  were  re- 


Banking.  733 

diiced  in  proportion.  Tlieir  legal  tender  quality  was  at  the 
same  time  limited  to  $5,  and  they  thus  became  subsidiary 
coins.  The  present  subsidiary  coins  are  half  dollars^  quarter 
dollars  and  dimes.  Their  "weight  is  slightly  different  from  that 
prescribed  by  act  of  1853 ;  but  the  limit  of  their  legal-tender 
quality  has  been  raised  to  $10,  and  $117,845,395.85  have  been 
coined  since  1873. 

The  amount  of  full-weight  fractional  silver  coined  prior  to 
1853  was  $76,734,964.50,  and  the  amount  of  subsidiary  silver 
coined  since  that  year  is  $176,892,792.05. 

There  was  a  period,  from  1862  to  1876,  when  there  was  no 
fractional  silver  coin  in  circulation  in  the  United  States  ex- 
cept on  the  Pacific  coast.  During  this  period  the  small  change 
of  the  country  consisted  of  fractional  paper  currency^  which 
will  be  described  in  its  place. 

ISSUE    OF    STANDARD    SILVER    DOLLARS    AND    SUBSIDL\RY    SILVER 

COIX. 

Standard  silver  dollars  are  issued  by  the  Treasurer  and  as- 
sistant treasurers  in  redemption  of  silver  certificates  and 
Treasury  notes  of  1890,  and  are  sent  by  express,  at  the  ex- 
pense of  the  Government,  in  sums  or  multiples  of  $500,  for 
-silver  certificates  or  Treasury  notes  of  1890  deposited  with  the 
Treasurer  or  any  assistant  treasurer. 

Upon  the  deposit  of  an  equivalent  sum  in  United  States  cur- 
rency or  national-bank  notes  with  the  Treasurer  or  any  assist- 
ant treasurer  or  national-bank  depositary,  subsidiary  silver  coin 
will  be  paid  in  any  amount  by  the  Treasurer  or  assistant  treas- 
urers in  the  cities  where  their  several  offices  are,  or  will  be  sent 
by  express,  in  sums  of  $200  or  more,  at  the  expense  of  the 
Government,  or  by  registered  mail,  at  the  risk  of  the  c6nsignee^ 
in  packages  of  $50,  registration  free,  from  the  most  convenient 
Treasury  office,  to  the  order  of  the  depositor.  For  this  purpose 
drafts  may  be  sent  to  the  Treasurer  or  the  assistant  treasurer 
in  Xew  York,  payable  in  their  respective  cities  to  the  order  of 
the  officer  to  whom  sent. 

PAPER    MONEY. 

/  The  first  paper  money  ever  issued  by  the  Goveniment  of 
the  United  States  was  authorized  by  the  acts  of  July  17  and 
Au2:ust    5,    1861.      The    notes   issued   were    called    ''  demand 


734  Appendix. 

notes,"  because  they  were  payable  on  demand  at  certain  desig- 
nated subtreasuries.  They  were  receivable  for  all  public  dues, 
and  the  Secretary  was  authorized  to  reissue  them  when  re- 
ceived; but  the  time  within  which  such  reissues  might  be  made 
was  limited  to  December  31^  1862.  The  amount  authorized 
by  these  acts  was  $50,000,000.  An  additional  issue  of 
$10,000,000  was  authorized  by  the  act  of  February  12,  1862, 
and  there  were  reissues  amounting  to  $30,000.  The  demand 
notes  were  paid  in  gold  when  presented  for  redemption  and 
they  were  received  for  all  public  dues,  and  these  two  qualities 
prevented  their  depreciation.  All  other  United  States  notes 
were  depreciated  in  value  from  1862  until  thei  resumption  of 
specie  payments,  as  shown  by  the  table  hereinafter  following. 
The  act  of  February  25,  1862,  provided  for  the  substitution  of 
United  States  notes  in  place  of  the  demand  notes,  and  the 
latter  were  therefore  canceled  when  received.  By  July  1, 
1863,  all  except  $3,770,000  had  been  retired,  and  nearly  three 
millions  of  this  small  remainder  were  canceled  during  the  next 
fiscal  year.  These  notes  were  not  legal  tender  when  first  issued, 
but  they  were  afterwards  made  so  by  the  act  of  March  17th, 
1862. 

UNITED  STATES  XOTES. 

The  principal  issue  of  United  States  paper  money  was  of- 
ficially called  United  States  notes.  These  were  the  well-known 
"  greenbacks  "  or  "  legal  tenders."  The  act  of  February  25, 
1862,  authorized  the  issue  of  $150,000,000,  of  which  $50,- 
000,000  were  in  lieu  of  an  equal  anjount  of  demand  notes, 
and  could  be  issued  only  as  the  demand  notes  were  canceled. 
A  second  issue  of  $150,000^000  was  authorized  by  the  act 
of  July  11,  1862,  of  which,  however,  $50,000,000  was  to  be  a 
temporary  issue  for  the  redemption  of  a  debt  known  as  the 
temporary  loan.  A  third  issue  of  $150,000,000  was  authorized 
by  the  act  of  March  3,  1863.  The  total  amount  authorized^ 
including  the  temporary  issue,  was  $450,000,000,  and  the 
highest  amount  outstanding  at  any  time  was  $449,338,902  on 
January  30,  1864.     There  are  still  outstanding  $346,681,016. 

The  reduction  from  the  original  permanent  issue  of  $400,- 
000,000  to  $346,681,016  was  caused  as  follows:  The  act  of 
April  12,  1866,  provided  that  United  States  notes  might  be 
retired  to  the  extent  of  $10,000,000  during  the  ensuing  six 


Banking.  Y35 

months,  and  that  thereafter  they  might  be  retired  at  the  rate 
of  not  more  than  $1,000,000  per  month.  This  authority  re- 
mained in  force  until  it  was  suspended  by  the  act  of  February 
4,  18GS.  The  authorized  amount  of  reduction  during  this 
period  was  about  $70,000,000,  but  the  actual  reduction  was 
only  about  $44,000,000.  jSTo  change  was  made  in  the  volume 
of  United  States  notes  outstanding  until  after  the  panic  of 
1873,  when,  in  response  to  popular  demand,  the  Government 
reissued  $26,000,000  of  the  canceled  notes. 

This  brought  the  amount  outstanding  to  $382,000,000,  and 
is  so  remained  until  the  resumption  act  of  January  14,  1875, 
provided  for  its  reduction  to  $300,000,000.  The  process  was, 
however,  again  stopped  by  the  act  of  May  31,  1878,  which  re- 
quired the  notes  to  be  reissued  when  redeemed.  At  that  time 
the  amount  outstanding  was  $346,681,016,  which  is  the  present 
amount.  The  amount  of  United  States  notes  redeemed  from  the 
fund  raised  for  resumption  purposes  since  January  1,  1879,  to 
June  30,  1900,  was  $564,147,369  ;  but  the  volume  outstanding  is 
undiminished  because  of  the  provisions  of  the  act  of  May  31, 
1878,  which  require  the  notes  so  redeemed  to  be  paid  out 
again  and  kept  in  circulation. 

The  act  of  March  14,  1900,  also  directed  the  reissue  of 
United  States  notes  when  redeemed,  but  they  must  first  be 
exchanged  for  gold  as  provided  in  the  said  act.  The  act  also 
provides  that  when  silver  certificates  of  large  denominations 
are  canceled  and  small  denominations  issued  in  their  place, 
a  like  volume  of  small  United  States  notes  shall  from  time  to 
to  time  be  canceled  and  notes  of  $10  and  upward  issued  in 
substitution  therefor. 

GOLD  CERTIFICATES. 

The  act  of  March  3,  1863,  authorized  the  Secretary  of  the 
Treasury  to  receive  deposits  of  gold  coin  and  bullion  in  sums 
not  less  than  $20,  and  to  issue  certificates  therefor  in  denomi- 
nations not  less  than  $20,  said  certificates  to  be  receivable  for 
duties  on  imports.  Under  this  act  deposits  of  gold  were  re- 
ceived and  certificates  issued  until  January  1,  1879,  when  the 
practice  was  discontinued  by  order  of  the  Secretary  of  the 
Treasury.  The  purpose  of  the  order  was  to  prevent  the  holders 
of  United  States  notes  from  presenting  them  for  redemption 


T36  Appendix. 

in  gold,  and  redepositing  the  gold  in  exchange  for  gold  cer- 
tificates. l\o  certificates  were  issued  after  January  1,  1879, 
until  the  passage  of  the  bank  act  of  July  12,  1882,  which  au- 
thorized and  directed  the  Secretary  of  the  Treasury  to  receive 
gold  coin  and  bullion  and  issue  certificates. 

This  act,  however,  provided  that  "  the  Secretary  of  the 
Treasury  shall  suspend  the  issue  of  gold  certificates  whenever 
the  amount  of  gold  coin  and  gold  bullion  in  the  Treasury,  re- 
served for  the  redemption  of  United  States  notes,  falls  below 
one  hundred  millions  of  dollars."  The  act  of  March  14,  1900, 
r«.-enacted  this  provision,  and  further  provided  that  the  Secre- 
tary may,  in  his  discretion,  suspend  such  issue  whenever  and 
so  long  as  the  aggregate  amount  of  United  States  notes  and 
silver  certificates  in  the  general  fund  of  the  Treasury  shall  ex- 
ceed $60,000,000. '  It  provided  further  that  of  the  amount  of 
such  certificates  outstanding  one-fourth,  at  least,  shall  be  in 
denominations  of  $50  or  less.  The  amount  of  gold  certificates 
now  outside  the  Treasury  is  $200,555,469.  The  act  of  July  12, 
1882,  made  them  receivable  for  customs,  taxes,  and  all  public 
dues. 

SILVER   CEETIFICATES. 

The  act  of  February  28,  1878,  authorizing  the  issue  of  the 
standard  silver  dollars,  provided  that  any  holder  of  such  dol- 
lars might  deposit  them  in  sums  not  less  than  $10  with  the 
Treasurer  or  any  assistant  treasurer  of  the  United  States  and 
receive  certificates  therefor,  in  denominations  not  less  than 
$10,  said  certificates  to  be  receivable  for  customs,  taxes,  and 
all  public  dues.  The  act  of  August  4,  1886,  authorized  the  is- 
sue of  the  smaller  denominations  of  $1,  $2,  and  $5.  Silver 
certificates  have  practically  taken  the  place  in  circulation  of 
the  standard  silver  dollars  which  they  represent.  The  amount 
outside  the  Treasury  July  1,  1900,  was  $408,499,347,  while 
the  amount  of  standard  silver  dollars  outside  the  Treasuiy  was 
only  $66,429,476.  The  act  of  March  14,  1900,  provided  that 
thereafter  the  issue  of  silver  certificates  should  be  limited  to 
the  denominations  of  $10  and  under,  except  that  10  per  cent 
of  the  total  volume  of  such  certificates,  in  the  discretion  of  the 
Secretary  of  the  Treasury,  may  be  issued  in  denominations  of 
$20,  $50,  and  $100.  Neither  silver  certificates  nor  silver  dol- 
lars are  redeemed  in  gold. 


Baxivixg.  Y37 

TREASUKY  XOTES,  ACT  OF  JULY  14,  1890. 

These  notes  were  authorized  bv  the  act  of  July  14,  1800, 
commonly  called  the  "  Sherman  Act."  The  Secretary  of  the 
Treasury  was  directed  to  purchase  each  month  4,500,000 
ounces  of  fine  silver  at  the  market  price,  and  to  pay  for  the 
same  with  Treasury  notes  redeemable  on  demand  in  coin  and 
legal  tender  for  all  debts,  public  and  private,  except  where 
otherwise  expressly  stipulated  in  the  contract.  It  was  pro- 
vided in  the  act  that  when  the  notes  should  be  redeemed  or 
received  for  dues  thy  might  be  reissued,  but  th^it  no  greater  or 
less  amount  of  such  notes  should  be  "  outstanding  at  any  time 
than  the  cost  of  the  silver  bullion  and  the  standard  silver  dol- 
lars coined  therefrom  then  held  in  the  Treasury  jiurchased  by 
such  notes." 

The  authority  for  the  purchase  of  silver  bullion  under  this 
act  was  repealed  by  the  act  of  Xovember  1,  1893,  up  to  which 
date  the  Government  had  purchased  108,674,682.53  fine  ounces 
at  a  cost  of  $155,931,002,  for  which  Treasury  notes  were 
issued.  The  amount  of  silver  bullion  purchased  under  said  act, 
and  now  held  in  the  Treasury  is  77,454,253.37  fine  ounces, 
which  cost  $70,079,834.30.  When  coined  it  will  produce 
$100,142,873,  of  which  $30,063,639  will  be  gain,  or  seign- 
iorage. The  amount  of  Treasury  notes  reedemed  in  gold  up 
to  the  close  of  the  fiscal  year  1900  was  $106,556,655  and  the 
amount  redeemed  in  standard  silver  dollars  was  $70,703,410. 
Treasury  notes  redeemed  in  standard  silver  dollars  are  canceled 
and  retired  in  accordance  with  the  requirements  of  the  act  of 
1890.  Sections  5  and  8  of  the  act  of  March  14,  1900,  also 
provide  for  the  cancellation  and  retirement  of  Treasury  notes 
to  an  amount  equal  to  the  coinage  of  standard  silver  dollars 
and  subsidiary  silver  from  the  bullion  purchased  ^vitli  such 
notes.  The  cancellation  of  notes  on  account  of  coinage  since 
March  14,  1900,  is  $9,200,592,  so  that  there  remained  out- 
standing Jime  30,  1900,  but  $76,027,000.  Such  notes  re- 
deemed in  gold  are  reissued  as  required  in  the  course  of  busi- 
ness. 

Copies  of  the  Treasury  regulations  governing  the  issue  and 
redemption  of  currency  can  be  procured  by  application  to  the 
Treasurer  of  the  United  States. 
47 


^d8  Appendix. 

FKACTIONAL  CUEEENCY. 

"When  specie  payments  were  suspended  about  January  1^ 
1862,  both  gold  and  silver  coins  disappeared  from  circulation. 
The  place  of  the  subsidiary  silver  coins  was  for  a  time  supplied 
by  the  use  of  tickets,  duebills,  and  other  forms  of  private  obliga- 
tions, which  were  issued  by  merchants,  manufacturers,  and 
others  whose  business  required  them  to  "  make  change."  Con- 
gress soon  interfered,  and  authorized,  first,  the  use  of  postage 
stamps  for  change;  second,  a  modified  form  of  postage  stamp 
called  postal  currency,  and  finally  fractional  paper  currency  in 
denominations  corresponding  to  the  subsidiary  silver  coins. 
The  highest  amount  authorized  was  $50,000,000.  The  highest 
amount  outstanding  at  any  time  Avas  $49,102,660.27,  and  the 
amount  still  outstanding,  though  not  in  use  as  money,  is 
$15,254,924.41,  of  which  $8,375,934  is  officially  estimated  to 
have  been  destroyed. 

EEDEMPTIO:^". 

Gold  coins  and  standard  silver  dollars,  being  standard  coins 
of  the  United  States,  are  not  "  redeemable." 

Subsidiary  coins  and  minor  coins  may  be  presented,  in  sums 
or  multiples  of  $20,  to  the  Treasurer  of  the  United  States  or 
to  an  assistant  treasurer  for  redemption  or  exchange  into  law- 
ful money. 

United  States  notes  are  redeemable  in  United  States  gold  coin 
in  any  amount  by  the  Treasurer  and  all  the  assistant  treasurers 
of  the  United  States. 

Treasury  notes  of  1S90  are  redeemable  in  United  States  gold 
coin  in  any  amount  by  the  Treasurer  and  all  the  assistant 
treasurers  of  the  United  States. 

N ational-hanh  notes  are  redeemable  in  lawful  money  of  the 
United  States  by  the  Treasurer,  but  not  by  the  assistant  treas- 
urers. They  are  also  redeemable  at  the  bank  of  issue.  In 
order  to  provide  for  the  redemption  of  its  notes  when  pre- 
sented, every  national  bank  is  required  by  law  to  keep  on  de- 
posit with  the  Treasurer  a  sum  equal  to  5  per  cent  of  its 
circulation. 

Gold  certificates  being  receipts  for  gold  coin,  are  redeemable 
in  such  coin  by  the  Treasurer  and  all  assistant  treasurers-  of 
the  United  States. 


Banking.  'i^S^ 

Silver  certificates  are  receipts  for  standard  silver  dollars 
deposited,  and  are  redeemable  in  such  dollars  only. 

'"  Coin  "  obligations  of  the  Government  are  redeemed  in  gold 
coin  ^vhen  gold  is  demanded  and  in  silver  when  silver  is  de- 
manded. 

AN  ACT  DIRECTING  THE  PUECHASE  OP  SILVER  BULLION  AND  THE 
ISSUE-  OF  TREASURY  NOTES  THEREON,  AND  FOR  OTHER  PUR- 
POSES. 

Be  it  enacted  hy  the  Senate  and  House  of  Representatives  of 
the  United  States  of  America  in  Congress  assembled.  That  the 
Secretary  of  the  Treasury  is  hereby  directed  to  purchase,  from 
time  to  time,  silver  bullion  to  the  aggregate  amount  of  four 
million  five  hundred  thousand  ounces,  or  so  much  thereof  as 
may  be  offered  in  each  month,  at  the  market  price  thereof, 
not  exceeding  one  dollar  for  three  hundred  and  seventy-one 
and  twenty-five  hundredths  gi'nins  of  pure  silver,  and  to 
issue  in  payment  for  such  purchases  of  silver  bullion  Treasury 
notes  of  the  United  States  to  be  prepared  by  the  Secretary  of 
the  Treasury,  in  such  form  and  of  such  denominations,  not  less 
than  one  dollar  nor  more  than  one  thousand  dollars,  as  he  may 
prescribe;  and  a  sum  sufficient  to  carry  into  effect  the  provisions 
of  this  act  is  hereby  appropriated,  out  of  any  money  in  the 
Treasury  not  otherwise  appropriated. 

Sec  2.  That  the  Treasury  notes  issued  in  accordance  with 
the  provisions  of  this  act  shall  be  redeemable  on  demand,  in 
coin,  at  the  Treasury  of  the  United  States,  or  at  the  office  of 
any  assistant  treasurer  of  the  United  States,  and  when  so  re- 
deemed may  be  reissued;  but  no  greater  or  less  amount  of  such 
notes  shall  be  outstanding  at  any  time  than  the  cost  of  the 
silver  bullion  and  the  standard  silver  dollars  coined  therefrom, 
then  held  in  the  Treasury  purchased  by  such  notes;  and  such 
Treasury  notes  shall  be  a  legal  tender  in  payment  of  all  debts, 
public  and  private,  except  where  otherwise  expressly  stipulated 
in  the  contract,  and  shall  be  receivable  for  customs,  taxes,  and 
all  public  dues,  and  when  so  received  may  be  reissued;  and  such 
notes,  when  held  by  any  national  banking  association,  may  be 
counted  as  a  part  of  its  lawful  reserve.  That  upon  demand  of 
the  holder  of  any  of  the  Treasury  notes  herein  provided  for  the 
Secretary  of  the  Treasury  shall,  under  such  regulations  as  he 


740  Appendix. 

may  prescribe,  redeem  siieli  notes  in  gold  or  silver  coin,  at  his 
discretion,  it  being  the  established  policy  of  the  United  States 
to  maintain  the  two  metals  on  a  parity  with  each  other  upon 
the  present  legal  ratio,  or  such  ratio  as  may  be  provided  by  law. 
Sec.  3.  That  the  Secretary  of  the  Treasury  shall  each  month 
coin  two  million  ounces  of  the  silver  bullion  purchased  under 
the  provisions  of  this  act  into  standard  silver  dollars  until  the 
first  day  of  July,  eighteen  hundred  and  ninety-one,  and  after 
that  time  he  shall  coin  of  the  silver  bullion  purchased  under 
the  provisions!  of  this  act  as  much  as  may  be  necessary  to  pro- 
vide for  the  redemption  of  the  Treasury  notes  herein  provided 
for,  and  any  gain  or  seigniorage  arising  from  such  coinage  shall 

be  accounted  for  and  paid  into  the  Treasury. 

*  -x-  *  *  "     *  * 

Approved,  July  U,  1890. 

MEANING  OF   16  TO  1. 

The  phrase  "  16  to  1,"  as  applied  to  coinage,  means  that  the 
mint  value  of  16  ounces  of  silver  shall  be  equal  to  the  mint  value 
of  1  ounce  of  gold;  that  is,  that  16  ounces  of  silver  shall  be 
coinable  into  as  many  standard  silver  dollars  as  one  ounce  of 
gold  is  coinabler  into  standard  gold  dollars. 

STANDARD  BULUON. 

Standard  bullion  contains  900  parts  of  pure  gold  or  pure 
silver  and  100  parts  of  copper  alloy.  J^O^Is)!^^^^ 

The  coining  value  of  an  ounce  of  pure  gold  is  $20.67183,  and 
the  coining  value  of  an  ounce  of  standard  gold  is  $18.60465. 

The  coining  value  in  standard  silver  dollars  of  an  ounce  of 
pure  silver  is  $1.2929,  and  the  coining  value  of  an  ounce  of 
standard  silver  is  $1.1636, 

WHAT  IS  SEIGNIORAGE. 

This  term,  as  used  in  the  United  States,  means  the  profit  aris- 
ing from  the  coinage  of  bullion.  The  Government  does  not 
purchase  gold  bullion,  but  coins  it  on  private  account.  There 
is  no  profit  from  the  coinage  of  gold  bullion,  the  face  value  of 
gold  coins  being  the  same  as  their  bullion  value,  but  at  the 
present  ratio  of  16  to  1  the  face  value  of  the  silver  dollar  is 


Banking.  V41 

greater  than  its  bullion  vakie;  therefore  when  silver  bullion 
is  purchased  and  coined  into  dollars  there  is  a  profit  arising 
from  such  coinage,  the  amount  of  which  depends  upon  the  price 
paid  for  the  bullion.  For  example,  there  are  371^  gTains  of 
pure  silver  in  a  dollar  and  there  are  480  grains  of  pure  silver 
in  a  fine  ounce.  The  coinage  value  of  a  fine  ounce  is  therefore 
$1.2929 — .  If  the  fine  ounce  can  be  purchased  for  70  cents, 
the  profit  of  its  coinage  (the  seigniorage)  is  $0.5929 — ,  and  the 
profit  on  the  371i  grains  of  pure  silver  in  the  single  dollar  is 
$0.4586 — ,  which  is  the  difference  between  the  actual  cost  of 
the  bullion  in  the  dollar  and  the  nominal  value  of  the  coin. 

The  silver  purchased  bj  the  Government  is  carried  on  the 
books  of  the  Treasury  at  its  actual  cost,  and  the  seigniorage  is 
declared  on  the  coinage  of  each  month  and  paid  into  the 
Treasury. 

COINAGE    OF   GOLD. 

In  the  United  States  there  is  free  and  imlimited  coinage  of 
gold;  that  is,  standard  gold  bullion  may  be  deposited  at  the 
mints  in  any  amount,  to  be  coined  for  the  benefit  of  the  de- 
positor, without  charge  for  coinage;  but  when  other  than  stan:l- 
ard  bullion  is  received  for  coinage  a  charge  is  made  for  parting, 
or  for  refining,  or  for  copper  alloy,  as  the  case  may  be.  Ee- 
fining  is  the  elimination  from  the  bullion  of  all  base  metals. 
Parting  is  the  separation  of  any  silver  Avhich  may  be  con- 
tained in  the  bullion.  The  charges  for  these  operations  vary 
according  to  the  actual  expenses.  When  copper  is  added  for 
alloy,  a  charge  of  2  cents  per  ounce  is  made  for  the  amount 
actually  added.  The  depositor  receives  in  gold  coin  the  full 
value  of  the  gold  in  his  bullion,  less  such  charges  as  are  indi- 
cated above. 

The  mints  may  lawfully  refuse  to  receive  gold  bullion  of  less 
value  than  $100,  or  when  it  is  too  base  for  coinage;  but  in 
practice  deposits  of  gold  bullion  are  accepted  without  regard  to 
amounts,  and  rejected  only  when  too  base  for  coinage. 

COINAGE  OF  SILVER. 

Under  existing  law  in  the  United  States  subsidiary  silvei* 
«nd  standard  silver  dollars  are  coined  only  on  Government  ac- 


T42  Appendix. 

count  They  are  coined  from  bullion  purchased  by  the  Govern- 
ment, and  the  profits  of  such  coinage  belong  to  the  Government. 
There  is  at  present  no  authority  for  the  purchase  of  bullion  for 
the  coinage  of  standard  silver  dollars,  but,  if  necessary,  suffi- 
cient bullion  may  be  purchased  to  maintain  the  stock  of  sub- 
sidiary silver. 

The  Government  is  still  coining  standard  silver  dollars  from 
the  bullion  purchased  imder  the  act  of  July  14,  1890.  The 
amount  of  bullion  on  hand  Xovember  1,  1893,  when  the  pur^ 
cliasing  clause  of  that  act  was  repealed,  was  140,699,852.67  fine 
ounces,  costing  $126,758,280,  the  coining  value  of  which  was 
$181,914,961.  Between  Xovember  1,  1893,  and  July  1,  1900, 
there  were  coined  from  this  bullion  79,165,665  standard  silver 
dollars,  of  which  $54,853,083  represent  the  cost  of  the  bullion 
coined  and  are  held  in  the  Treasury  for  the  redemption  of 
Treasury  notes  of  1890,  while  the  remainder,  $24,310,582,  con- 
stitute the  gain  or  seigniorage,  and,  being  the  property  of  the 
United  States,  has  been  paid  into  the  Treasury,  to  be  used  like 
other  available  funds. 

The  seigniorage  is  an  addition  to  the  volume  of  money  in 
the  country,  while  the  silver  dollars  representing  the  cost  of 
the  bullion  are  not,  since  they  are  paid  out  only  in  redemption 
of  the  Treasury  notes  of  1890,  whereupon  the  latter  are  can- 
celed and  retired,  as  prescribed  by  the  act  of  July  14,  1890. 

The  total  expenditure  by  the  United  States  for  silver  bullion, 
exclusive  of  subsidiary  silver  coinage,  is : 

Under  act  of  February  28,  1878 $308,279,260  71 

Under  act  of  July   14,   1890 155,931,002  00 

Total $404,210,262  71 

There  have  been  coined  from  the  bullion  thus  purchased  stand- 
ard silver  dollars  of  the  face  value  of  $498,496,215,  and  there 
remain  uncoined  77,454,253.37  fine  ounces,  which  cost  $70,- 
079,834.30. 

The  present  bullion  value   (July  1,  1900)   of  the  standard 

silver   dollars   coined   is $238,566,424  07 

And  the  present  bullion  value  of  the  uncoined  bullion  is.  .  47,925,593  82 

Making  a  total  bullion  value  of $286,492,017  8» 


Bankixg.  '^'4:3 

The  space  required  for  the  storage  of  1,000,000  standard 
silver  dollars  is  250  cubic  feet.  The  standard  silver  dollars  in 
the  vaults  of  the  Treasury  and  the  several  subtreasuries,  June 
30,  1900,  amounting  to  about  430,000,000,  require  107,500 
cubic  feet  of  space. 

For  other  particulars  respecting  silver  dollars  and  subsidiary 
silver,  see  pages  11,  12,  and  13  and  the  coinage  tables  herein 
contained. 

TKADE   DOLLARS. 

The  trade  dollar  of  420  grains  troy  was  authorized  by  the 
act  of  February  12,  1873.  It  was  intended  for  circulation  in 
oriental  countries  as  a  substitute  for  the  Mexican  dollar,  which 
it  slightly  exceeded  in  weight ;  but  by  the  terms  of  the  authoriz- 
ing act  it  was  made  legal  tender  in  the  United  States  in  sums 
not  exceeding  $5. 

This  legal-tender  quality  was  withdrawn  by  the  joint  resolu- 
tion approved  July  22,  1876,  and  the  coinage  was  limited  to 
such  amount  as  the  Secretary  of  the  Treasury  should  considei; 
sufficient  to  meet  the  export  demand.  The  act  of  February  19, 
1887,  provided  for  the  retirement  of  trade  dollars  and  their 
recoinage  into  standard  silver  dollars  or  subsidiary  silver.  For 
six  months  after  the  passage  of  the  act  they  could  be  exchanged 
at  the  Treasury  or  any  subtreasury,  dollar  for  dollar,  for  stand- 
ard silver  dollars  or  subsidiary  coin. 

The  total  number  of  trade  dollars  coined  was  35,965,924. 
The  number  redeemed  under  the  act  of  1887,  was  7,689,036, 
and  from  the  bullion  resulting  from  the  melting  of  these  dol- 
lars there  were  coined  in  subsidiary  silver  $2,668,674.30,  and 
into  standard  silver  dollars  $5,078,472.  Since  the  expiration  of 
the  period  of  redemption  above  mentioned,  trade  dollars  have 
been  purchased  as  bullion  when  presented  at  the  mints. 

FEEE  AND  UNLIMITED  COINAGE  OF   SILVER. 

This  term,  as  used  at  present  in  the  discussion  of  the  coinage 
question,  means  the  right  of  any  person  to  deposit  standard 
silver  bullion  in  any  amount  at  the  mints  of  the  United  States 
and  have  it  coined  at  the  expense  of  the  Government,  such  de- 
positor to  receive  in  return  for  his  bullion  silver  coins  c<mtaining 
in  the  aggregate  the  same  weight  of  fine  silver  as  brought  to  the 
mint. 


744  Appendix. 

Any  coinage  under  a  future  law  would  depend  upon  the  terms 
of  that  law.     (See  "  Coinage  of  gold.") 

UNLIMITED    COINAGE. 

Coinage  may  be  unlimited  without  being  entirely  free.  It 
would  be  unlimited  if  any  owner  of  bullion  had  the  right  to  de- 
posit it  at  the  mint  and  have  it  converted  into  coins  without  any 
restrictions  as  to  the  amount. 

WO'ELd's  stock  of  gold  and  SILVER  COIN  IN  1873  AND  1899. 

The  stock  of  gold  and  silver  in  the  world  in  1873  and  1899 
is  estimated  to  have  been  as  follows : 


Gold  . . 
Silver  , 


1873. 


$3,045,000,000 
1,817,000,000 


1899. 


$4,631,700,000 
3,83€.UX),00U 


SALES    OF    GOLD. 

During  the  period  of  the  suspension  of  specie  payments  — 
January  1,  1862,  to  January  1,  1879  —  the  customs  revenues 
of  the  Government  were  collected  in  gold.  A  sufficient  amount 
of  this  gold  was  reserved  to  meet  that  portion  of  the  interest 
on  the  public  debt  which  Avas  payable  in  coin,  and  the  re- 
mainder was  sold  from  time  to  time  for  currency  at  the  market 
price  by  the  several  assistant  treasurers  of  the  United  States, 
under  instructions  from  the  Secretary  of  the  Treasury.  The 
currency  so  obtained,  with  the  currency  collected  from  internal 
revenue  and  from  other  sources,  was  used  to  defray  the  ordinary 
expenses  of  the  Government.  The  surplus,  if  any,  was  applied, 
as  far  as  it  would  go,  to  the  redemption  of  lawful-money  ob- 
ligations as  they  fell  due,  and  after  their  maturity  to  the  pur- 
chase of  bonds  at  the  market  price. 

The  total  amount  of  gold  sold  was  $526,506,273.81,  and  the 
currency  received  therefor  amounted  to  $633,334,089.67. 

The  average  premium  obtained  was  20.3  per  cent. 


Banking. 


745 


FOKEIGN   COINS   NOT   LEGAL  TENDER. 

Section  3584  of  the  Eevised  Statutes  of  the  United  States 
provides  that  no  foreign  coins  shall  be  a  legal  tender  in  the 
United  States. 


Denominations^  "^Veight,  and  Fineness  of  the  Coins  of  the 
United  States. 


gold. 


Denomination. 


One  dollar  ($1) 

Quarter  eagle  (S2.50) . . 

Three  dollars  (S3) 

Half  eagle  (S5) 

Eagle  (|ilO) 

Double  eagle  (S20) 


Fine  gold 
contained. 


Grain.s. 

23.22 

58.05 

69.66 

116.10 

232.20 

464.40 


Alloy  con- 
tained.a 


Grains. 
2.58 
6  45 
7.74 
12  90 
25.80 
51.60 


Weight. 


Grains. 
25.80 
64.50 
77.40 
129.00 
258.00 
516.00 


SILVER. 


Denomination. 

Fine  silver 
contained. 

Alloy  con- 
tained. 

"Weight. 

Grains. 
371.25 
173.61 
86.805 
34.722 

Grains. 

41.25 

19.29 

9.645 

3.858 

Grains. 
412.50 

Half  dollar 

192.90 

Quarter  dollar 

96.45 

38.58 

Prior  to  the  act  of  February  21, 1853,  all  silver  coins  were  legal  tender  in  all  payments 
whatsoever.  The  act  of  February  21,  1853,  reduced  the  weight  of  all  silver  coins  of  less 
denomination  than  the  silver  dollar  about  7  per  cent.,  to  be  coined  on  Government  account 
only,  and  made  them  legal  tender  in  payment  of  debts  for  all  sums  not  exceeding  $5. 


MINOR. 


Denomination. 

Fine  copper 
contained. 

Alloy  con- 
tained. 

Weight. 

Five  cents  b 

Grains. 

57.87 

Grains. 
19.29 

Grains. 
77.16 

45.60                 '■>  40 

48 

Troj  weights  are  used,  and  while  metric  weights  are  by  law 
assigned  to  the  half  and  quarter  dollar  and  dime,  troy  weights 


"^  The  alloy  neither  adds  to  nor  detracts  from  the  value  of  the  coin. 
^  Seventy-five  per  cent  copper,  25  per  cent  nickel. 
^  Ninety-five  per  cent  copper,  5  per  cent  tin  and  zinc. 


746  AppE^'DIx. 

still  continue  to  be  employed,  15.432  grains  being  considered 
as  the  equivalent  of  a  gram,  agreeably  to  the  act  of  Julj  28, 
1866. 

The  weight  of  $1,000  in  United  States  gold  coin  is  53.75 
troy  ounces,  equivalent  to  3.68  pounds  avoirdupois.  The  weight 
of  $1,000  in  standard  silver  dollars  is  859.375  troy  ounces, 
equivalent  to  58.92  pounds  avoirdupois,  and  the  weight  of 
$1,000  in  subsidiary  silver  is  803.75  troy  ounces,  equivalent 
to  55.11  pounds  avoirdupois. 


Bankixo. 


74- 


Authority  for  Coining,  Changes  in  Weight  and  Fineness,  and  Amount 
Coined  for  each  Coin. 


Denomination. 


Act  author- 
izing coinage 

or  change 
in  weight  or 

fineness. 


Weight 
(grains). 


Fine- 
ness. 


Act  discontin- 
uing coinage. 


Total  amount 

coined  to 
June  30,  1904. 


GOLD  COINS. 

Double  eagle  (S20)  . 
Eagle  ($10) 


Half  eagle  ($5) 

Quarter  eagle  ($2.50) . 


Tliree-dollar  piece 

One  dollar 

•One  dollar,  Louisiana  Pur- 
chase-Exposition   


Dollar 


SILVER  COINS. 


Trade  dollar b... 
Lafayette  dollar 
Half  dollar 


Columbian  half  dollar  . 
•Quarter  dollar 


Columbian  quarter  dollar. 

Twenty-cent  piece 

Dime 


Half  dime , 


Three-cent  piece 


MINOR  COINS. 

Five  cent  (nickel) . . 
Three  cent  (nickel) 
Two  cent  (bronze)  . 
Cent  (copper) 


Cent  (nickel) 

Cent  ( bi-onze ) 

Half  cent  (copper) . 


March  3,  1849 
April  2,  1792 
June  28,  1834 
Jan.  18.  1837 
April  2,  1792 
June  28,  1834 
Jan.  18,  1837 
April  2,  1792 
June  28,  1834 
Jan.  18,  1837 
Feb.  21.  1853 
March  3,  1849 

June   28,  1902 


April  2,  1792 
Jan.  18,  1837 
Feb.  28,  1878 
July  14,  1890 
Feb.  12,  1873 
March  3.  1899 
April  2,  1792 
Jan.  18,  1837 
Feb.  21,  1853 
Feb.  12,  1873 
Aug.  5,  1892 
April  2,  1792 
Jan.  18,  1837 
Feb.  21,  1853 
Feb.  12,  1873 
March  3,  1893 
March  3,  1875 
April  2,  1792 
Jan.  18,  1837 
Feb.  21,  1853 
Feb.  12,  1873 
April  2,  1792 
Jan.  18,  1837 
Feb.  21,  1853 
March  3,  1851 
March  3,  1853 

May  16,  1866 
March  3,  1865 
April  22,  1864 
April  2,  1792 
Jan.  14,  1793 
j  Jan.  26,  1796 
Feb.  21,  1857 
April  22,  1864 
April  2,  1792 
Jan.  14,  1793 
7  Jan.  26,  1796 


516 

270 
258 


135 
139 


67.5 
64.5 


77.4 
25.8 


25.8 


41? 
4121^ 


420 

412^ 

208 

206^ 

192 
cl9.'.9 

192.9 

104 

1031.^ 
96 

e96.45 
96.45 
/  77.16 
41.6 
41  ^ 
38.4 
g  38.58 
20.8 
20% 
19.2 
12% 
11.52 

77.16 

30 

96 
264 
208 
168 

72 

48 
132 
104 

84 


.900 

.916% 

.899225 

.900 

.916% 

.899;i25 

.900 

•916% 

.899225 

.900 

.900 

.900 

.900 


.8924 
.900 


.900 
.900 
.8924 
.900 


.900 

.8924 

.900 


.900 
.900 
.8924 
.900 


.S924 
.900 

!750" 
.900 

(h) 
(h) 
(0 


Sept.  26,  1890 
Sept.  26,  1890 


Feb.    12,1873 
Feb."'l9,'i887 


May     2,  1878 


Feb.    12,  1873 
Feb!  "'12,' 1873 


Sept.  26,  1890 
Feb.    12,  1873 


Feb.    21,  1857 
April  22,  1864 


Feb.    21,  1857 


Sl,850,281,r60  00 

-378,877,070  00 

-301,683,260  00 

i  30,263,555  00 

1,619,376  00 
19,499,337  00 

250,258  00 


1  a  8,031 
1  570,272 


238  00 
300  00 


8,303, 

35,965. 

50. 


538  00 
924  00 
000  00 


159,255,307  00 
d  2,500, 


\n. 


160 


dlO, 
271 


000  00 
687  00 


000  00 
000  00 


45,690,597  90 


4,880,219  40 

1,282,087  20 

23,583,141  40 
941,349  48 
912, 020  00 

1,562,887  44 

2,007,720  00 
13, 14% 544  77 

39,826  11 


a  Amount  coined  to  February  12,  1873,  $8,031,238.  b  Coinage  limited  to  export  de- 

mand, joint  resolution  July  22,  1876.  c  12i^grams,  or  192.9grains.  d  Total  amount 

coined.  e  6J4  grams,  or  96.45  grains.  "/ 5  grams,  or  77. 16  grains.  </ 2}.^  grams, 

or  38.58  grains.  h  Composed  of  75  per  cent  copper  and  25  per  cent  nickel.  /  Com- 

posed of  95  per  cent  copper  and  5  per  cent  tin  and  zinc.  j  By  proclamation  of  the  Presi- 

dent, in  conformity  with  act  of  March  3,  1795.  k  Composed  of  88  per  cent  copper  and  12 

per  cent  nickel. 

•  Total  coinage. 

Gold $2,582,474, 816  00 

Silver  dollars $578  353.538 

Silver  trade  dollars 35.965,924 

Silver  subsidiary 

Minor '. 


614,319,462  00 
291,049,898  .50 
42,190,593  20 

Grand  total $3, 530, 034, 769  70 


'48 


ArrEXDix. 


STATEilENT   OF    THE    COIX    AND    PAPER    ClRCULATIOX    OF    THE    UXITED    STATES 

FROM    1860    TO    1904,    Inclusive,    AviTn    Amount    of    Circlxatiox    pek 

Capita. 

RECAPITULATION. 


United 
States  notes 

Coin  bullion. 

5  — . 

Coin,  includ- 
ing bullion  in 

Total  money. 

and  paper 
money  in 

Circulation. 

Popula- 
tion. 

•2  a, 
|3 

Treasury. 

bank  notes. 

Treasury,  as 
assets. 

.11 
O 

1860 

4235,000,000 

$207,102,477 

§442,103.477 

$6,695,225 

$485,407,353 

31,443,321 

$13.85 

1861 

250,000.000 

202,005,767 

452.005.767 

3,600,000 

448,405,767 

82.064,000 

13.98 

1862 

25,000.000 

333,452.079 

858.453.079 

23,754,335 

334,697,744 

82,704.000 

10.23 

1863 

25,000,000 

649,867.283 

674,867.383 

79,473,245 

595,394,038 

a3.865.000 

17.84 

1864 

25,000,000 

680.588.067 

705.588.067 

35,946.589 

669,641.478 

34,046,000 

19.67 

1865 

25,000.000 

745.129,755 

770,129.755 

55,436.760 

714.702.995 

34.748,000 

20.57 

1866 

25,000,000 

729,327.254 

754.327.254 

80.839.010 

673,488.244 

35,469,000 

18.99 

1867 

25.000.000 

703.200.612 

728,200,612 

66,208.543 

661.992.069 

36.311,000 

18.28 

1868 

25,000.000 

691,553,578 

716.553.578 

38.449.917 

680.103.661 

36.973.000 

18.39 

1869 

25,000,000 

690,351.180 

715.351.180 

50.898.289 

664,452.891 

37.756.000 

17.60 

1870 

25.000,000 

697,868,461 

722,868.461 

47.655.667 

675,312,794 

a8.558.371 

17.50 

1871 

25,000.000 

716,812.174 

741.812,174 

25.923.169 

715,889.005 

89.555,000 

18.10 

1872 

25,000.000 

737.721.565 

762.721,565 

24.412.016 

738,309.549 

40.596,000 

18.19 

1873 

25,000.000 

749.445.610 

774.445.610 

22.563,801 

751.881.809 

41.667,000 

18.04 

1874 

25,000,000 

781.024,781 

806.024.781 

29.941,750 

776.083.031 

43,796,000 

18.13 

1875 

25.000.000 

773,273.509 

798.273,509 

44.171,562 

754.101,947 

43.951,000 

17.16 

1876 

52,418,734 

738.264,550 

790.683.284 

63.073.896 

727.609,388 

45.137,000 

16.13 

1877 

65.837.506 

697,216,341 

763.053,847 

40.738.964 

733,314,883 

46,353,000 

15.58 

1878 

102.047.907 

687,743,069 

789,790,976 

60,658,342 

729.132,634 

47,598,000 

15.. 33 

1879 

857,268.178 

676,372,713 

1,033,640,891 

215,009,098 

818,631.793 

48,866.000 

16.75 

1880 

494,363.884 

691.186.443 

1.185,550.327 

212.168.099 

973,382,228 

50.155.783 

19.41 

1881 

647.868.683 

701.733.691 

1.349,592,373 

235,354,254 

1.114,238.119 

51,816,000 

21.71 

1882 

703,974.839 

705.433,050 

1,409,397'889 

235,107,470 

1.174,290.419 

53,495,000 

23.37 

1883 

769,740.048 

703.754.297 

1.472,494.345 

242,188.649 

1,230.305.696 

53,698,000 

22.91 

1884 

801,068.939 

686.180,899 

1,487,249.838 

243,323,869 

1,348.925,969 

54.911.000 

23.65 

1885 

872,175,823 

665.357,727 

1,537,433.550 

244.864.935 

1,292.568.615 

56,148.000 

23.  (B 

1886 

903,027,804 

658.380,470 

1.561,407,774 

308.707,249 

1,252.700,525 

57.404,000 

21.82 

1887 

1.007,513,901 

635,898,804 

1,633,412,705 

815,873.562 

1,317.539.143 

58,680,000 

22.45 

1888 

1,092,391,690 

599,049,337 

1,691,441,027 

319,270,157 

1,372,170,870 

59.974.000 

32.88 

1889 

1.100,612,434 

558,059,979 

1.658,672,413 

278,310,764 

1,380.361,649 

61,389.000 

22.52 

1890 

1,153,471.638 

532,651.791 

1.685,123,429 

255,872,159 

1.429  251.270 

62.623.350 

22.82 

1891 

1.112,956.637 

564.837,407 

1.677,794,044 

180,.353,337 

1,497,440,707 

68.947.000 

23.42 

1892 

1.131,142.260 

621.076,937 

1.752,219,197 

150,873,010 

1,601,347.187 

65,191.000 

34.56 

1893 

1.066.223.357 

672,585,115 

1.738,808,472 

142,107,227 

1,596,701.245 

66,456,000 

24.03 

1894 

1.098,958.741 

706,120.220 

1.805,078,961 

144.270,253 

1,660.808.708 

67.740.000 

34.52 

1895 

1,114.899,106 

704.460.451 

1.819,359,557 

217,891.084 

1,601,968.473 

69.043.000 

33.20 

1896 

1.097.610.190 

703.364,843 

1,799,975.033 

293.540.067 

1.506.4*4,966 

70,365,000 

21.41 

1897 

1.213.780.289 

692.216.330 

1,905.996,619 

265,787,100 

1,640.209.519 

71,704,000 

22.87 

1898 

1.397.785.969 

675,788.473 

2,073,574,442 

235,714,547 

1.837.859.895 

73,060,000 

25.15 

1899 

1,508.513,738 

681.550.167 

2.190,093.905 

286,033,024 

1.904.071.881 

74.4.33,000 

25.58 

1900 

1.607.352,213 

732,348,460 

2.339,700,673 

284,549,675 

2,055.150,998 

76.395,220 

26.94 

1901 

1,734,861,774 

748.206.203 

2,483.067,977 

807,760,015 

2,175,307,962 

77.754,000 

27.98 

1902 

1.829.913.551 

733.353,107 

2.563.266,658 

813,876,107 

2,249,390.551 

79,117,000 

28.43 

1903 

1.905.116,321 

779,594,666 

2.684.710.987 

317.018,818 

2.367.692.169 

80,487,000 

29.43 

1904 

1,992.971,093 

808.894,111 

2,801.865,204 

280,713  677 

2,521,151,527 

81.867,000 

30.80 

Note  1.—  Specie  payments  were  suspended  from  January  1, 1862,  to  January  1, 1879.  During- 
the  greater  part  of  that  period  gold  and  sUver  coins  were  not  in  circulation  except  on  the 
Pa;-iflc  coast  where,  it  is  estimated,  the  specie  circulation  was  generally  about  $35,000,000.  This 
estimated  amount  is  the  only  coin  included  in  the  above  statement  from  1862  to  1875,  inclusive. 

Note  2.—  In  1876  subsidiary  silver  again  came  into  use,  and  is  included  in  this  statement, 
beginning  with  that  year.  -  „  , 

Vote  3.— The  coinage  of  standard  silver  dollars  began  in  1878,  under  the  act  of  February 
28.  1878. 

Note  4.— Specie  payments  were  resumed  fl^anuary  1.  1879.  and  all  gold  and  silver  coins,  as 
well  as  gold  and  silver  bullion  in  the  Treasury,  are  included  in  this  statement  from  and  after 
that  date.  ,       ,  .      . 

Note  5.— This  table  represents  the  circulation  of  the  United  States  as  shown  by  «hp  revised 
statements  of  the  Treasury  Department  for  June  30  of  each  of  the  years  specified.  See 
next  page. 


Banking. 


•49 


Product  of  Gold  and  Silvek  in  the  United  States  froji  1792  to  1844, 
AND  Annually  Since. 

FThe  estimate  for  1792-1873  is  by  R.  W.  Raymond,  Commissioner,  and  since  by  Director  of 
'-  ^  the  Mint.l 


Year. 

Gold. 

Silver. 

Total. 

$14,000,000 
7,500,000 
1,008,327 
1,140,000 
889,000 
10,000,000 
40,000,000 
50,000,000 
55,000,000 
60,000,000 
65,000,000 
60,000,000 
55,000,000 
55,000,000 
55,000,000 
50,000,000 
50,000,000 
46,000,000 
43,000,000 
39,200,000 
40,000,000 
46,100,000 
53,225,000 
53,500,000 
51,725,000 
48,000,000 
49,500,000 
50,000,000 
43,500,000 
36,000,000 
36.000,000 
33,500,000 
33,400,000 
39,900,000 
46.900.000 
51,200,000 
38,900.000 
36,000,000 
34,700,000 
32,500,000 
30,000,000 
30,800,000 
31,800,000 
35,000,000 
33,000,000 
33,175,000 
32,800,000 
32,845.000 
33,175,000 
33,000,000 
35,955,000 
39,500,000 
46,610,000 
53,088,000 
57,363,000 
64,463,000 
71,053,000 
79,171,000 
78,667,000 
80,000,000 
74,428,90u 

Insignificant. 

$250,000 

50.000 

50,000 

50,000 

50,000 

50,000 

50,000 

50,000 

50,000 

50,000 

50,000 

50,000 

50,000 

50,000 

500,000 

100,000 

150,000 

2,000,000 

4.500,000 

8,500,000 

11,000,000 

11,250,000 

10,000,000 

13,500,000 

12,000,000 

12,000,000 

16,000,000 

23,000,000 

28,750,000 

35,750,000 

37,300,000 

31,700,000 

38,800,000 

39,800,000 

45,200,000 

40,800,000 

39,200,000 

43,000,000 

46,800,000 

46,200,000 

48,800,000 

51,600,000 

57,000,000 

53,350,000 

59,195,000 

64,646,000 

70,465,000 

75,417,000 

82,101,000 

77,576,000 

64,000,000 

72,051.000 

76,069,000 

69,637.000 

70,384,000 

70,807.000 

74,533,000 

71,388,000 

71,758,000 

73,076,100 

$14,000,000 

7,750,000 

1,058,000 

1,190,000 

939,000 

10,050,000 

40,050,000 

50,050,000 

55,050,000 

60,050,000 

65,050,000 

60,050.000 

55,050,000 

55,050,000 

Ig57                          

55,050,000 

jg5g                              

50,500,000 

50,100,000 

46,150,000 

45,000,000 

43,700,000 

48,500,000 

57,100,000 

64,475,000 

63,500,000 

65,225,000 

60,000,000 

61,500,000 

66,000,000 

1871                             

66,500,000 

64.750,000 

71,750,000 

70,800,000 

65,100,000 

78,700,000 

1S77                              

86,700,000 

96,400,000 

79,700,000 

75,200.000 

1881                   

77,700,000 

79,300,000 

1883                               

76,200,000 

79,600,000 

1885  

83,400,000 

86,000,000 

1887     

86,350,000 

92,370,000 

1889                     

97,446,000 

103,310,000 

1891                                 

108,592.000 

115,101,000 

113,531,000 

103,500,000 

1895                   

118,661,000 

129,157,000 

1897                                 

127,000,000 

134,847,000 

1899       

141.860,000 

153,704,000 

1901       . .           

150,055,000 

151,758.000 

147,505.000 

Xotal     

2,618,180,900 

1,946,553,100 

4,564,734,000 

750 


AprEij^Dix. 


Statement  showing  the  Principal  of  the  Public  Debt,  Exclusive  of 
Gold,  Silver,  and  Currency  Certificates  and  Treasury  Notes  of 
1890,  THE  Decrease  and  Increase  therein  and  Premium  Paid,  fob 
EACH  Annual  Period  from  March  1,  1885,  to  March  1,  1904. 


March  1 — 

Principal   of 
debt,     exclusive 
of    certificates 

and 
Treasury   notes. 

Decrease. 

Increase. 

Premium     paid. 

1885 

$1,541,527,867.93 
1,530,284,465.03 
1,400,847,399.78 
1,319,561.586.38 
1,199,809,418.73 

1886     

$10,973,402.90 
129,437,065.25 
81,285,813.40 
119,752.167.65 

1887     

1888     .    . 

$2  852  015  88 

1889 

19,525.107.23 

341.448,449.20 

22,377.123.11 

1890 

1,090.514,608.23 

1,017,985,785.98 

972,282,890.61 

963,281,752.63 

109.294,810.50 
72.528,822.25 
45.702.895.37 
9,001..137.98 

15  688  510  58 

1S91   

14,203  016  09 

1S92     

1893        

for  four  years 



Total 

236,527,666.10 

33,891.526.67 

1894   

1,007.356,015.43 
1,068,610,527.18 
1,199,774,479.40 
1.225,437,709.40 

$44,074,262.80 
61.254.511.75 

131.163.952.22 
25,663.230.00 

1895 

1 896     . . 

1897 

0.262.155. 956. 77 

1898 

1.235,668,419.90 
1,427,007,904.90 
1,417,248,882.17 
1.385,934.653.17 

10.230,710.50 
191.339,485.00 

1899 

1900 

9.759.022.73 
31,314,229,00 

2,373,502.40 

1901 

43.582.004.59 

41,073,251.73 

201.570.195.50 

6160,496,943.77 

45,955,506.99 

1902 

1,329,917,918.64 
1,312,516.368.89 
1.291.103.139.39 

56,016.734.58 
17,401.549.75 
21,413.229.50 

14  426  927.34 

1903 

7,659,632.49 

1904 

5.962.649.91 

94.831,513.78 

28,049,209.74 

oThe  debt  during  the  four-year  period  1894  to  1897  was  increased  by  sales  of  bonds..  $262,315,400.00 

By   issue  of  4  per  cent  bonds  for  interest  on  refunding  certificates 15.290.00 

By  national-bank  notes  deposited  in  the  Treasury   in  c^tcess  of  redemptions  thereof. . .  817,883.25 


263,148.573.25 


The   debt   during  the  same   period   was   decreased  by   the   redemption    of  bonds    and 
other  securities 


992,616.48 


Net   increase   for  the  period 262.155.956.77 

6The  debt  during  the  four-year  period  1898  to  1901  was  increased  by  sales  of  bonds 

under  act  of  June  13,  1898.   to  meet  expenditures  of  the  war  with  Spain 198.792,640.00 

By   issue  of  4  per  cent  bonds  for  interest  on  refunding  certificates 7.970.00 

By  national-bank  notes  deposited  in  the  Treasury  in  excess  of  redemptions  thereof .. .  5,901.282.50 


The  debt   during  the   same   period   was  decreased — 

By    bonds   purchased $19,300,650.00 

By  bonds  and   other  securities  redeemed 24,904.298.73 


204,701.892.50 


44,204,948.73 


Net   increase  for  the  period 160,496,943.77 


Baxkixg. 


Y51 


PRINCIPAL      OF      THE      PUBLIC      DEBT      AND      INCREASE      AND 
DECREASE     THEREIN       FROM       1865     TO      1904. 

Statement  showing  the  Principal  of  the  Public  Debt,  Exclusive  of 
Gold,  Silver,  and  Cl'Bkency  Certificates  and  Treasury  Notes  of 
1890,  the  Decrease  and  Increase  therein,  and  Premium  Paid,  for 
Each  Fiscal  Year  from  18G4  to  1904,  both  inclusive. 


July  1— 


1864. 
1865. 
1866. 
1867. 
1S68. 
1869. 
1870. 
1871. 
1872. 
1873. 
1874. 
1875. 
1876. 
1877. 
1878. 
1879. 
1880. 
1881. 
1882. 
1883. 
1884. 
1885. 
1886. 
1887. 
1888. 
1889, 
1890, 
1S91, 
1892 
1893 
1894 
1895 
1896 
1897 
1898 
1899 
1900 
1901 
1902 
1903 
1904 


Principal  of 
debt,  exclusive 
of  certificates 

and 
Treasury  notes. 


815, 
680, 
762, 
659, 
594 
541, 
432, 
319, 
207, 
149, 
156 
138, 
104, 
094 
149, 
183, 
071 
986 
819, 
685, 
585, 
539, 
495, 
367, 
292, 
171, 
066, 
005, 
968, 
961, 
016, 
096. 
222, 
226! 
232, 
436, 
,413, 
371, 
328, 
309, 
286 


1,222 
1 


84,370. 
647,869. 
454,033. 
358,323. 
009,211. 
366,033. 
125,307. 
325,032. 
165,028. 
292,993. 
105,368. 
073,231 
873,667. 
768,792. 
621,292. 
244,422. 
571,500. 
139,119. 
859,164. 
801,257. 
939,572. 
955,087. 
411,093. 
492,625. 
679,062. 
419,624. 
777,474. 
806,560. 
218,840. 
431,766. 
897,816. 
913,120. 
729.350. 
793.712. 
743,062 
700,703 
416,912, 
572,244 
031,356 
405,912 
,259,016 


$864,863,499.17 
81,806,163.95 


6,812,375.23 


54,852,500.43 
33,623,129.51 


55,466,050.55 
80,015,303.57 
125,816,230.15 
4,064,362.50 
5,949,350.00 
203,957,641.02 


$103,095,709.82 
65,349,112.68 
52,643,177.25 
109,240,726.13 
112,800,275.49 
112,160,003.54 
57,872,035.58 


18,032,136.48 
33,199.564.80 
10,104,875.05 


111,672,921.41 

85,432,381.05 

166,279,955.55 

134.057,906.96 

99,861,684.50 

45,984,485.43 

44,543,993.36 

127,918,468.15 

74,813,563.05 

121,259,438.35 

104,642,149.50 

60,970,914.12 

37,587,719.98 

6,787,074.50 


23,283,791.25 

41,844,667.78 
43.540,888.00 
18,625,444.00 
23,146.896.75 


Premium 
paid. 


$1,717,900.11 
58.476.51 

10,813,349.38 
7,001,151.04 
1,674,680.05 

15,996,5.55.60 
9,016,794.74 
6.958,266.76 
5,105,919.99 
1,395,073.55 


2,795,320.42 
1,061,248.78 


8,270,842.46 
17,292,362.65 
20.304,224.06 
10,401,220.61 


33,147,054.81 

14.649,572.95 

14.043,391.14 

10,907,119.82 

1,257,578.01 


nO 


Appendix. 


Productiox  of  Gold  and  Silver  ix  the 
[From  1495  to  1885  is  from  a  table  of  averages  for  certain  periods,  compiled  by  Dr.  Adolph  Soet- 


1493- 

1521- 
1545' 
1561- 
1581- 
1601- 
1621- 
1641- 
1661- 
1681- 
1701- 
1721- 
1741- 
1761- 
1781- 
1801- 
1811- 
1821- 
1831- 
1841- 
1851- 
1856- 
1861- 
1866- 
1871- 
1876- 
1881- 
1886- 
1891- 
1896. 
1897. 
1898. 
1899. 
1900. 
1901. 
1902. 


•1520. 
■1541. 
•1560. 
•1580. 
•1600. 
•1620. 
1640. 
1660. 
1680. 
■1700. 
1720. 
1740. 
1760. 
1780. 
1800. 
1810. 
1820. 
1830. 
1840. 
1850. 
1855. , 
1860. , 
1865. , 
1870. , 
1875. . 
1880. , 
1885. . 
1890. . 
1895. . 


Total. 


Annual  average    for    period. 


Fine  ounces. 


186,470 

230,194 

273,596 

219,906 

237,267 

273,918 

266,845 

281,955 

297,709 

346,095 

412,163 

613,422 

791,211 

665,666 

571,948 

571,563 

367.937 

457,044 

652,291 

1.760,302 

6,410,324 

6.486.262 

5,949.382 

6.270.086 

5.591,014 

5.543,110 

4,794.755 

5,461,282 

7,882,565 

9,783,914 

11.420,068 

13.877,806 

14.837,775 

12..315,135 

12,698,089 

14,313,660 


;  I 


$3,855,000 

4,759,000 

5,656,000 

4,545,000 

4,095,000 

5,662,000 

5,516,000 

5.828,000 

6,154,000 

7,154,000 

8,520,000 

12,681,000 

16,336,000 

13,761,000 

11,823.000 

11,815,000 

7,606,000 

9,448,000 

13,484,000 

36.393,000 

132,513,000 

134,083,000 

122,989,000 

129,614,000 

115,577,000 

114,586,000 

99,116,000 

112,895,000 

162.947,000 

202,251,600 

236,073,700 

286,879,700 

306,724,100 

254,576,300 

262,492,900 

293,883.600 


Total   for  period. 


Fine  ounces. 


5,221,160 
5,524,656 

4,377,544 

4,398,120 

4,745,340 

5,478,J60 

5,336,900 

5,639,110 

5,954,180 

6.921,895 

8,243,260 

12,268,440 

13,824,230 

13,313,315 

11,438,970 

5,715.627 

3,679,568 

4,570,444 

6,522,913 

17,605,018 

32,031,621 

32,431,312 

'29.747.913 

31,330.430 

27,935,068 

27,715,530 

23,973,773 

27,306,411 

39,412,823 

9,783,914 

11,420,068 

13,877,806 

14,837,775 

12,315,135 

12.698.089 

14,313,660 


513,970,398 


$107,931,000 
114,205,000 
90,492,000 
90,917,000 
98,095,000 
113,248,000 
110,324,000 
116,571,000 
123,084,000 
143,088,000 
170,403,000 
253,617,000 
327,116,000 
275,211,000 
236,464,000 
118,152,000 
76,063,000 
94,479,000 
134,841  000 
363,928.000 
662,566,000 
670,415.000 
614,944,000 
648.071,000 
577,883,000 
572,931,000 
495,582,000 
564,474,000 
814,736,000 
202,251,600 
236,073,700 
286,879,700 
306,754,100 
2.54,576,300 
262,492.900 
295.889.600 

10,624,712,900 


Total  production: 

Gold,    1903,    $325,527,200 
Gold,    1904,      346,725,093 


Banking. 


Y53 


World  since  the  Discovery  of  Amebic  a. 

beer  for  the  years  1886  to  1904,  the  production  is  the  annual  estimate  of  the  Bureau  of  the  Mint.  ] 


SILVER. 

PERCENTAGE    OF  PRODUCTION. 

Annual  averag 

e    for    period. 

Total    fo 

r  period. 

By  weight. 

By     value. 

1 

Fine  ounces. 

Coining  value. 

Fine  ounces. 

Coining  value. 

Gold. 

Silver. 

Gold.|Silvr. 
1 

1 
66.4  1   33.6 

1,511,050 

$1,954,000 

42,309,400 

$54,703,000 

11 

89 

2,899,930 

3,740.000 

69,598,320 

89,986,000 

7.4 

92.6 

55.9  i     4.1 

10,017,940 

12,952,000 

160,287,040 

207,240,000 

2.7 

97.3 

30.4 

69.6 

9,628,925 

12,450,000 

192,5.78,500 

248,95(^000 

2.2 

97.8 

26.7 

73.3 

13,467,635 

17,413,000 

269,352,700 

348,254,000 

1.7 

98.3 

22 

7» 

13,596,235 

17,579,000 

271,924,700 

351,579,000 

2 

98 

24.4 

75.6 

12,654,240 

16,361,000 

253,084,800 

327,221,000 

2.1 

97.9 

25.2 

74.8 

11,776,545 

15,226,000 

235.530,900 

304,525,000 

2.3 

97.7 

27.1 

72.3 

10,834,550 

14,008,000 

216,691,000 

280,166,000 

2.7 

97.3 

30.5 

69.5 

10,992,085 

14,212,000 

219,841,700 

284,240,000 

3.1 

96.9 

33.5 

66.5 

10 

11,432,540 

14,781,000 

228,650,800 

295,629,000 

3.5 

96.5 

36.5 

63.4 

11 

13,863,080 

17,924,000 

277,261,600 

358,480,000 

4.2 

95.8 

41.4 

58.6 

12 

17,140.612 

22,162,000 

342,812,235 

443,232,000 

4.4 

95.6 

42.5 

57.5 

13 

20,985,591 

27,133,000 

419,711,820 

542,658,000 

3.1 

96.9- 

33.7 

66.3 

14 

28,261,779 

36.540.000 

565,235,580 

730,810,000 

2 

98 

24.4 

75.6 

15 

28,746,922 

37,168,000 

287,469,225 

371,677,000 

1.9 

98.1 

24.1 

75.9 

16 

17,385,755 

22,479,000 

173.857,555 

224,780,000 

2.1 

97.9 

25.3 

74.7 

17 

14,807,004 

19,144,000 

148,070,040 

194,444,000 

3 

97 

33 

67 

18 

19,175,867 

24,703,000 

191,758,675 

247,930,000 

3.3 

96.7 

35.2 

64.8 

19 

25,090,342 

32,440,000 

250.903,422 

324,400,000 

6.6 

93.4 

52.9 

47.1 

20 

28,488,597 

36,824,000 

142,442,986 

184,169,000 

18.4 

81.6 

78.3 

21.7 

21 

29,095,428 

37,618,000 

145,477,142 

188,092,000 

18.2 

81.8 

78.1 

21.9 

22 

35,401,972 

45,772,000 

177,009,862 

228,861,000 

14.4 

85.6 

72.9 

27.1 

23 

43,051,583 

55,663,000 

215.257,914 

278,313,000 

12.7 

87.3 

70 

30 

24 

63,317,014 

81,864,000 

316.585.069 

409,322.000 

8.1 

91.9 

58.5 

41.5 

25 

78,775,602 

101,851,000 

393,878,009 

509,256,000 

6.6 

93.4 

53 

47 

26 

92,003,944 

118,955,000 

460,019,722 

594,773,000 

5 

95 

45.5 

54.5 

27 

108,911,431 

140.815,000 

544,557,155 

704,074,000 

4.8 

95.2 

44.5 

55.5 

28 

157,581,331 

203.742,000 

787,906,656 

1,018,708,000 

4.8 

95.2 

44.4 

55.6 

29 

157,001,370 

203,069,200 

157,061,370 

203,069,200 

5.9 

94.1 

49.9 

50.1 

30 

160,421,082 

207,413,000 

160,421,012 

207,413,000 

6.7 

93.3 

53.2 

46.8 

31 

169,035,253 

218.576,800 

169,055,253 

218.576,800 

7.6 

92.4 

56.8 

43.2 

32 

168,337,453 

217,648,200 

168,337,453 

217,648,200 

8.1 

96.9 

58.5 

41.5 

33 

173,591,364 

224.441.200 

173,591,364 

224,441.200 

6.6 

9i.4 

53.2 

46.8 

34 

173,011,283 

223,691,300 

173,011,283 

223.691,300 

6.8 

93.2 

54 

46 

35 

165,955,639 

215,861,800 

166,955,639 

215,861,800 

7.9 

92.1 

57.8 

42.2 

36 

9,168,497,971 

11,854,213.500 

5.3 

94.7 

47.3      '^^  ' 

Silver,  1903,   $220,371,600 

Silver,   1904,       95,457,299  (commercial   value). 

48 


754 


Appendix. 


Statement  showing  the  Xet  Gold  Reserve  and  Net  Cash  Balance  in 
THE  Treasury  of  the  United  States  at  the  End  of  Each  Month 
FROif  January.  1894. 


1894 — January    . 
February 
March    . . . 

April    

May    

June    . .  . . 

July    

August  . . 
September 
October  . . 
November 
December 

1895 — January    . 
February 
March    . . . 

April    

May    

June    .... 

July    

August  . . 
September 
October  . . 
November 
December 

1896 — January    . 
February 
March    . . . 

April    

Maj-    

June    ..  . . 

July    

August  . . 
September 
October  . . 
November 
December 

1897 — January    . 
February 
March    . . . 

April    

May    

June    . .  . . 

July    

August  . . 
September 
October  . . 
November 
December 

1898— January    . 
February 
March    . . . 

April    

May    

June    . .  . . 

July    

August  . . 
September 
October  . 
November 
December 


Net  gold 
reserve. 


650,175 
000,000 
000,000 
000,000 
693,267 
873, 02i 
975,607 
216,900 
875,317 
361,826 
000,000 
244,445 

705,967 
085,511 
643,307 
247,144 
151,408 
000,000 
000,000 
000,000 
911,973 
943,179 
333,966 
262,268 


Net  cash 
balance. 


49,845,507 
100,000,000 
100,000,000 
100,000,000 
100,000,000 
100,000,000 
100.000,000 
100,000,000 
100,000,000 
100,000,000 
100,000,000 
100,000,000 

100,000,000 
100,000,000 
100,000,000 
100.000,000 
100,000,000 
100,000,000 
100,000,000 
100,000.000 
100,000,000 
100,000,000 
100.000.000 
100,000,000 

100,000.000 
100,000,000 
100,000,000 
100,000,000 
100.000.000 
lOO.OOO.OOO 
100.000,000 
100,000.000 
100.000,000 
100.000,000 
100,000,000 
100,000,000 


$18,431,925 
38,662,365 
33,950,025 
25,097,786 
39,161,069 
52,711,412 
64,089,745 
71,931,197 
61,044,402 
45,978,320 
44,507,606 
67,093,135 

99.897,337 
91,112,075 
97,273,954 
89,570,772 
86,218,692 
95,240,154 
87,149,531 
84,039,156 
92,493,390 
87,004,819 
98,072,421 
114,764,933 

121,746,271 
162,707,007 
171,641,748 
170,090,661 
167,193.211 
167,432.097 
156,158,472 
143,346,401 
141,154,455 
133,572,762 
125,357,098 
128,320,380 

115,362,421 
112,837,256 
122,045,606 
128,090,517 
130,113.813 
140,137,627 
133,016.457 
118,561,207 
115,192,787 
107,756,100 
120,663,560 
135.474,769 

123,871,786 
125,564,204 
126,166.944 
115.810,622 
95,754,815 
105,657.571 
154,844,215 
194,487,085 
207.557,504 
200,238.275 
192,376,790 
194,764,695 


$84,082,100 
138,662,365 
133,950,025 
125,097,786 
117,854,336 
117,584,436 
119.065,352 
127,148.097 
119,919,719 
107,340,146 
144,507,606 
153,337,580 

144,603,304 
178,197.58ft 
187,917,261 
180,817,916 
185,370,100 
195",  240, 154 
187,149,531 
184,039,156 
185,405,363 
179,947.998 
177,406,387 
178,027,201 

171.591,778 
262,707,007 
271,641,748 
270,090,661 
267,193,211 
267,432.097 
256,158,472 
243,346,401 
241,154,455 
233,572,762 
225,357,098 
228,320,380 

215,362,421 
212,837,256 
222,045,606 
228,090,517 
230,113,813 
240,137.627 
233,016,457 
218,561,207 
215,192,787 
207,756,100 
220,663,560 
235,474,769 

223,871.786 
225,564,204 
226,166,944 
215,810,622 
195,754,815 
205,657,571 
254,844,215 
294,487,085 
307,557,504 
300,238,275 
292,376,790 
294,764,696 


Banking. 


755 


Statement  showing  the  Net  Gold  Reserve  and  Net  Cash  Balance  in 

THE    TrEASXJRY    OF    THE    UNITED    STATES    AT    THE    EnD    OF    EaCH    MoNTH 

FROM  January^  1894 —  {Continued) . 


Net  cash 
balance. 


1899— January    . . 
February    . 

March    

April    

May    

June    

July    

August    . . . 
September 
October    . . 
NoTeraber 
December 


1900— January    . . 
February    . 

March    

April    

May    

June   

July    

August    . . . 
September 
October     . . 
November 
December 


1901 — January    . . 
February    . 

March    

April    

May    

June   

July    

August    . . . 

September 

October 

November 

December 


1902— January    . . 
February    . 

March    

April    

May    

June   

July    

August    . . . 
September 
October    . . 
November 
December 


1903— January    . . 
February    . 

March    

April    

May    

June   

July    

August    . . . 
September 
October     . . 
November 
December 


$100,000,000 
100,000,000 
100,000,000 
100.000,000 
100,000,000 
100,000.000 
100,000,000 
100,000.000 
100,000,000 
100,000,000 
100,000,000 
100,000,000 

100,000,000 
100,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 

150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 

150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,0110 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 

150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150.000.000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 


Net  gold 
reserve. 


$174,584,676 
169,103.513 
184,043,164 
163,127,533 
167,584,094 
181,380,469 
174,844,167 
179,352,873 
187,695,613 
189,391,540 
186,216,440 
183,595,453 

192,490,S73 
198,362,824 
156,792,^96 
146,117,548 
145,783,530 
155,705,655 
149,859,365 
135,419.696 
138,204,878 
137,005,032 
139,176,791 
140,107,336 

143,012,973 
148,915,149 
158,443,522 
156,494,208 
162,338,469 
176,833,125 
177,368,877 
179,971,356 
169,919,880 
175,655,697 
167,010,665 
171,603,279 

174,796,646 
175,361,867 
177,856,289 
184,739,984 
195,350,230 
208,574,116 
203,974,599 
209,491,401 
221,253,394 
206,421,878 
204,575,588 
214,409,380 

218,345,963 
224,543.470 
222.921,989 
223.326,187 
225,168,898 
234,394,276 
228,291,444 
233,450,711 
239,417.184 
228,637,403 
219,237,430 
229,374,895 


$274,584,676 
269,103,513 
284,043,164 
263,127,533 
267,584,094 
281,380,469 
274,844,167 
279,352,872 
287,695,613 
289,391,540 
286,216,440 
283,595,453 

292,490,973 
2?8,362,824 
306,792,996 
296,117,548 
295,783,530 
305,705,655 
299,859,365 
285,419,696 
288,204,878 
287,005,032 
289,176.791 
290,107,336 

293,012,973 
298,915,149 
308,443,522 
306,494,208 
312,338,469 
326,833,125 
327,368,877 
329,971,356 
319,919,880 
325,655,697 
317,010,665 
321,603,279 

324,796,648 
325,361,867 
827,856,289 
334,739,984 
345,350,230 
358,574,116 
353,974,599 
359,491,501 
371,253,394 
356,421,878 
354,575,588 
364,409,380 

368,345,963 
374,543,470 
372,921,989 
373,326,187 
375,168,898 
384,394,276 
378,291,444 
383,450,711 
389,417.184 
378,637,403 
369,237,430 
379,374,895 


756 


Appendix. 


Statement  Showing  the  Net  Gold  Reserve  and  Net  Cash  Balance  in  the 
Treasury  of  the  United  States  at  the  End  of  Each  Month  from  Jan- 
uary, 1894 —  (Concluded) . 


1904 — January    . 
February 
March    . . . 
April    .... 

May    

June   

July    

•  August  . . 
September 
October  . 
November 
December 

1905 — January    . 
February 
March    . . . 
April    .... 
May    


Net  gold 
reserve. 


$150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 

150,000,000 
150,000,000 
150,000,000 
150,000,000 
150,000,000 


Net  cash 
balance. 


$228,745,084 
223,068,506 
224,699,996 
220,919,188 
163,287,516 
169,027,242 
154,081,580 
147,975,364 
151,414,163 
146,352,797 
143,344,658 
146,592,689 

140,625,796 
140,681,839 
141,821,624 
134.318,681 
131,141,378 


$378,745,084 
373,068,506 
374,699,996 
370,919,188 
313,287,516 
319,027,242 
304,081,580 
297.975,364 
301,414,133 
296,352,797 
293,344,658 
296,592,689 

290,625,796 
290,681,839 
291,821,624 
284,318.681 
281,141,378 


Note.— The  gold  reserve  previous  to  March  14, 1900,  was  fixed  at  $100,000,000,  since  that 
date  at  $150,000,000. 


INDEX. 


[Eeferences  are  to  pages.] 

A. 

ACCEPTANCES.     (See  Notes  and  Collections.) 

ACCO^LMODATION:                                                                                         page. 
Bank  cannot  become  an  indorser    398 

ACTION: 

Clearing  house  may  sue  and  be  sued 566 

ACTS: 

Cashier  may  perform  certain  duties  away  from  bank 176 

What  may  work  forfeiture  of  bank  charter 508 

What    constitutes    liability 508 

ACKNOWLEDGMENT: 

Organization    cei-tificate     679 

(See  Oath.) 
ACTING   COMPTROLLER: 

Of   the   currency    578 

ADMINISTRATOR : 

Holding  stock  as   such  not  liable 80,     81 

(See  Trustee.) 
ADMISSIONS : 

Rule   affecting  bank    175,    176 

AMENDMENTS: 

Requirements    relative   to    705 

ADVERTISEMENTS : 

Imitation  of  circulation  in,  penalty  for 637 

AGENCY: 

National  bank  redemption,  provisions  for 598 

AGENT: 

Association    as    fiscal    of    Government 650 

Bonds,   examination  by    594 

Central    reserve,    city    612 

Circulation    to    witness    destruction 598 

National  bank  in  the  act,  when 358 

Liquidating    bank     632,  633 

Reserve    609 

Reserve,   citj'   additional    provisions    for 612 

Shareholders,  appointment  and  qualification  of 632 

Shareholders,    duties    of    633 

Special  to  examine  bank  failing  to  redeem  notes 626 

State  bank,  authority  when  may  act 359 

To  witness  destruction  of   circulation 598 

AIDING: 

Misdemeanors    of    officers    642 

ALLOTMENT.      (See  Shares.) 

APPLICATIONS :  ^ 

To   organize  bank,   form   of 673 

[757] 


758  IxDEx, 

APPOINTMENT:  page. 

Agent    to    examine    bond 594 

Agent  to  witness  destruction  of  circulation 598 

Committee    to   examine   bonds 594 

Committee  to  examine    plates,    etc 597 

Committee  to  witness   destruction  of  circulation 598 

Comptroller 577 

Deputy  Comptroller ■  •   578 

Directors,  appointment   of 581,  680 

Dissenting  shareholders,  committee  of  approval 622 

Examiners  of  associations 619 

Clerks  of  Comptroller's  office 578 

Directors  have  power  to  select  officers  and  clerks 92,  581,  682 

Liquidating  agent 708 

Receivers  of  associations   628 

Special   permission    for   preliminary    examination   of   associations, 
vacancies  in  board  of  directors 587 

ARTICLES  OF  ASSOCIATION: 

Amendment  of,  for  extension  of  corporate  existence....   621,  699,  704 

Amendment  of,  restricted 590 

Converted  State  bank,  execution  of,  by 588 

Converted  State  bank,  form  of 696 

Execution  of   678 

Form    of     676 

How   amended    215 

State   charter,   how   amended 215 

Charter  contract  between  parties  and   State 216 

Commercial  charter  cannot  be  amended  allowing  savings  privileges  217 

Purpose  of  charter,  cannot  be  changed 218 

In  amending,  law  must  be  strictly  followed 218 

Increase  of  capital  s'tock  by  amendment  of 590 

Proceedings  in  regard  to,  and  form  of   (national  bank) 580 

Provisions  of  elections  when  not  provided  for  in 587 

Reduction  of  capital  stock   (national  bank) 590 

Specification  of  objects  of  association  in 581 

Title  to  and  location,  change  of   (national  bank) 591 

ASSESSMENTS : 

Examinations    61  ^ 

Examiner,  national  bank,  compensation  of 619 

Impairment   of   capital 615,  616 

Plates,    engraving   of 59!),  601 

Redemption    of    circulation 600,  601 

Repayment  of 605 

Reports,  failure  to  make 604 

Semi-annual  duty 604 

Shareholder's   personal  liability 589 

Tax   on   unauthorized   circulation 606 

Transportation  of  notes 599 

ASSESSORS : 

Shareholders'  lists  accessible  to 617 

ASSETS : 

Comptroller's    annual    report    to    contain    statement    of    national 

banks 579 

Expenses  of  receiver  paid  from 630 

Fail  bank  may  be  turned  over  to  agent 632 

Insolvent  banks,  distribution   of .  t 629 

Of  consolidated   banks 624 


IxDEx.  759 

ASSETS  —  Continued :  page. 

Receiver  to  collect,  etc 628 

Receiver   to  sell  on  order   of  court 628 

Reports  of  condition  to  contain  statement  of 617 

Shareholder's   agent   to  distribute 63-3 

United  States  has  paramount  lien  on 627 

ASSIGXMEXT: 

Form  of,  of  temporary  certificate  of  stock 676 

Of  assets  after  insolvency  void 63.5 

Registered  bonds 593 

United  States  bonds  as  security  for  circulation 593 

(See  Pass  Books.) 

ASSISTANT  TREASURER  U.  S.: 

Circulation  unfit  to  be  sent  to  Treasurer  for  redemption 599 

Fraudulent  notes  to  be  marked  by 603 

Obligations  of  U.  S ". 638 

Public  moneys  to  be  deposited  with 657 

Unauthorized  withdrawal  of  public  money  from 658 

ASSOCIATIONS : 

National  bank  defined 608 

ATTACHMENT: 

Must  not  issue  prior  to  final  judgment  of  court 635 

AUCTION: 

Bonds  of  expiring  associations 625,  627 

Bonds   of   liquidating   associations 625,  627 

Enforcement    of   assessment,    impaired    capital 616 

Purchase  of  property  by  receiver 630 

Sale  of  delinquent  national  bank  stock 016 

Sale  of  dissenting  shareholder's  stock 622 

AUTHORITY : 

Unauthorized  banking 12 

(See  Certificate.) 

B. 

BAD  DEBTS : 

Defined   615 

BAILMENT : 

When  bank  becomes  bailee 410 

BALLOT.      (See  Elections:    Shareholdebs.) 
BANK'S  CIRCULATION.     (See  Circulation.) 

BANK : 

Defined  and  classified 18 

When  a  broker  becomes  a  banker '. 19 

General    definition   of 19 

Broker  and  banker  distinguished 22 

Bank   further   defined 23 

Commercial  bank  defined 24,  27 

Becomes  a  corporation  from  date  of  certificate 51 

Gilbert's  definition  of 23 

May  refuse  payment  of  deposit,  when 257 

Entitled  to  time  to  examine  books  before  payment  of  deposit 257 

Time  may  be  taken  to  balance  books  of  depositor  before  payment 

of  deposit 257 

Failing  to  use  proper  caution,  bank  liable 279 


760  Index. 

BANKING:  *  PAGE. 

General   definition   of U' 

Is  a    legislative   privilege 1,  8 

Privilege  when  granted  a  franchise 7 

May  be  a  constitutional  privilege 1 

Acting  without  authority 12 

Unlawful  banking  defined 17 

BANK  BORROWING: 

Extent   of    power ^ 331 

National  has  no  express  authority 331,  345 

Implied  authority    331 

Rule  in  Fed.  Cas.  No.   18,310 331,  333,  334 

Common-law  rule 335 

Is  an  incidental  power 336 

For  speculative  purposes  illegal 337 

When  necessity  arises  may 338,  351 

Officer  must  have  special  authority 341 

Question  discussed 331,  351 

Banks  organized  under  State  law  may  have  special  avithority 352 

Charter  may  authorize  power 353 

When  statute  restrains,  bank  has  no  power 354 

Rediscounting  a  note,  not  borrowing 360 

BANKING  HOUSE: 

Associations    may   o\\'n 374,  613 

BANKING  HOURS: 

When  binding  upon  the  public 395 

If  reasonable  the  law  will  regard 395 

Term  '"  banking  hours,"  reference  to 397 

BANK  POWERS: 

Corporate 581 

Incidental 391,  581 

Defined 204 

Statutory 204 

Implied  and  incidental   205 

National   can  exercise    205 

Have   what   authority 205,  206 

Borrowing  money 331,  354 

National  limited  as  an  agent 355 

Safe  deposit  incidental  power  of  bank 391 

Lending  credit,  when  prohibited   398 

BANKRUPTCY.     (See  Insolvency.) 

BILLS  OF  EXCHANGE: 

Defined 151 

Foreign 151 

Inland 151 

May  be  accepted  orally   278 

Discount  of .' 613 

Illegal  transfer  of,  void 635 

Interest  on 613 

Penalty  for  official  malfeasance,  relative  to 642 

Restriction  on  loans  not  applicable  to 614 

Restriction  on  association's  liability  not  applicable  to 615 

Transfer  of,  to  create  a  preference  void 635 

BONA  FIDE  HOLDER.   (See  Notes  and  Checks.) 


Index.  V61 

BONDS:  P^«E. 

Official Itl 

Comptroller ^'^ 

Deputy  Comptroller ' ^' ^ 

Officers   of   associations ^^1 

Officers',  renewal  of    ^' * 

Deposited  with  Treasurer  before  commencing  business 683 

Xeed  not  exceed  one-fourth  of  capital,  when 683 

Minimum   amount   of,  required 683 

Coupon  may  be  exchanged 683 

Assigned  to  Treasurer  in  trust 683 

Exchange  of ^^^ 

Interest  on,  how  paid 683 

Withdrawal  of  portion   683 

Extension  of  charter  need  not  be  transferred /03 

Public  depositaries 656 

Receiver 632 

Shareholder's   agent    ^^^ 

Shareholders   on   election   of   agents 632 

Directors  may  require  officers  to  give 98 

Directors'  duty  to  require   98 

BONDS,  UNITED  STATES: 

Annual  examination  of,  provided  for 594 

Assignment  or  transfer  of,  to  be  countersigned  by  Comptroller 593 

Association  to  be  notified  of  transfer  or  assignment 594 

Called   for   redemption 600 

Cancellation  of,  forfeited,  for  circulation  redeemed 627 

Circuhition   issuable   on 592 

Circulation  obtainable  on 595 

Comptroller,  access  to  records  of  and  deposit  with  Treasurer....  594 

Converted,  State  banks  to  deposit 588 

Coupon,  to  be  exchanged  for  registered 593 

Deficiency  in  proceeds  from  sale  of,  what  first  lien 627 


Defined 


592 


Deposit  of,  required  to  begin  business 592 

Depositaries  required  to  deposit 656 

Depreciation  in  value  of,  how  made  good 594 

Exchange  of,  permitted 594 

Forfeiture  of,  for   failure   to   redeem   circulation 626 

General  provisions  respecting 594 

Gold  banks  to  deposit 598 

Government  depositaries,  deposit  of,  required 656 

Increase  of  deposit  of 593 

Interest  on,   liable   for   penalty   for   failure   to   make   returns   and 

pay  tax 604 

Interest  on,  liable  for  penalty  for  failure  to  make  reports  to  Comp- 
troller    '■ 618 

Interest  on,  withheld  on  impaired  capital 615 

Lawful  money,  deposit  of,  to  retire  circulation  and  withdraw ....    600 
I^Iaximum  amount  which  may  be  deposited  to  secure  circulation..   595 

Minimum  amount  to  be  deposited 584,  592 

Maximum  circulation  issuable  on 595 

Obligations   of  United   States,  including,   defined 638 

Penalty  for  illegal  dealing  in  counterfeit . 640 

Penalty  for  illegal  possession  or  use  of  material  for  printing 638 

Penalty  for  passing  counterfeit ^ 639 

Penalty  for  taking  or  possessing  unauthorized  impressions  of  tools, 

used  in  printing 639.  640 

Reassignment  of.  to  liquidating  bank 624 

Record  of  transfer  or  assignment  of,  to  be  kept  by  Comptroller .  .   593 


T62  Index. 

BONDS,  UNITED  STATES  —  Continued :  page. 

Registered,  to  be  deposited  with  Treasurer  United  States 592 

Relation  of,  on  deposit  to  capital 593 

Return  of,  to  association 594 

Sale  of,  at  auction,  for  failure  to  redeem  circulation 627 

Sale   of,   privately,   at   not   less   than   par,   for   failure   to   redeem 

circulation 628 

Taxation,   exempt   from 607 

Transfer  of,   how  effected 595 

Treasurer  United  States  to  have  access  to  records  of  Comptroller 

relative  to 594 

Treasurer  United  States  to  hold,  in  trust  for  association 593 

Withdrawal  of,  and  of  circulation 600 

Withdrawal  of 593 

(See  Dealing  in  Stocks  and  Bonds.) 

BOOKKEEPER.     (See  Officees  and  Tellers.) 

BOOKS : 

Correctness  of  pass-books  may  be  inquired  into 240 

Pass-books  made  transferable  by  by-law 240 

Entry  in  pass-book  may  not  be  conclusive 240 

Time  may  estop  investigation  into 240 

Rules  of  savings  banks  inserted  in 480 

Depositors  should  sign  signature  in 488 

Notice  of  loss  of  pass-book  should  be  given  to  bank 488 

(See  Comptroller;  Treasurer  U.  S.) 

BORROWED  MONEY.     (See  Banks  Borrowing;  Liability  of  Asso- 
ciation; Loans.) 

BRANCH  BANKS: 

Law  relative  to   712 

National  cannot  have   37 

Congress  may  authorize    37 

Chicago   World's   Fair 660 

Louisiana    Exposition    660 

State  banks  may  have 37 

State  banks  entering  system  by  conversion  may  retain 589 

States  authorizing  branches    41 

No  authority  unless  authorized 48 

BUSINESS: 

Authorization  of  association  to  begin,  when 583 

Place  of 609 

Suspension  of,  after  default  to  pay  circulation 637 

BUSINESS  PAPER.     (See  Commercial  Paper  and  Bank  Powers.) 

BY-LAWS : 

Prescribed  by  directors  of  national  banks 581 

Form  of,  for  national  bank 691 

Defined 52 

Power  to  make   52 

Power  delegated  by  statute 52 

Who  has  power  to  make 52 

Where  statute  provides   purpose 53 

Must  be  reasonable 53,  56 

When  becomes  a   law 53 

Must   be   proved 54 

Who  are  bound  by 54 

Actions  upon 54 

When  void 54 


Index.  763 

BY-LAWS  —  Continued :  page. 

Lien  under 55 

Effect  of  failure  to  make 56 

Defining   duties    of   oiiicers 57 

Amending 57 

Statute  prescribing  time  to  be  adopted 58 

Of   savings   banks 481 

Depositors  must  liave  knowledge  of 485 

Change  of  by-law,  effect  of 485,  487 

Must  be  known  to  depositor 481,  490 

C. 
CANCELLATION.     (See  Bonds,  United  States;  Circulation.) 

CAPITAL  STOCK: 

Statute    fixes    amount 34 

Note  cannot  be  received  as  cash,  in  payment  for 34 

Agent  of  shareholders  to  distribute  assets  ratably 633 

Amount  to  be  paid,  before  national  association  begins  business.  .  .  583 

Appointment  and  qualification  of  shareholder's  agent 632 

National  to  begin  business,  amount  to  be  paid 538 

Branches   of   converted   State   banks 589 

Certificate    of    officers    and    directors    required,    relative    to,    pay- 
ment of 538,  584 

Certificate,  issue  of,  to  whom  and  when 678 

Form  of  certificate  of  payment  converted  State  bank 699 

Circulation  not  to  be  used  to  correct 615 

Circulation   outstanding  not  exceeding   5   per   cent,   of,   free   from 

taxation 605 

Circulation  proportioned  to    592 

Compensation  of  examiners  based  on,  except  in  certain  cases 619 

Conversion  of  State  banks,  authorized,  when 588 

Creditor's  bill  against  shareholders -. 635 

Deposit  of  United  States  bonds  based  on 584 

Directors,  individual   liability  of 630 

Directors,  qualification  of   586 

Dividends  declared  on,  and  net  earnings  dn  excess  of,  dividends  to 

be    reported 618 

Dividends  on,  and  creation  of  surplus 614 

Dividends,  when  prohibited 615 

Disposition  of  delinquent  shareholders 583 

Division  of,  into  shares,  and  number  and  value  of  each 583 

Enforcing  of  assessment  to  make  good  impairment  of 616 

Enforcing  individual  liability  of  shareholders  of.  by  recei^'er 628 

Enforcing   payment   of 583 

Enforcing  payment  of  subscription  to 688 

Failure  to  dispose  of  shares  purchased  or  acquired  by  association.  .  628 

Holders  of  shares  of.  in  expiring  association  to  be  extended,  etc.  .  622 

Holding  of  shares  of,  required  by  directors • 586 

Impairment   of,    assessment    for 615 

Impairment   of,   receiver   mav   be   appointed   for   failure   to   make 

good ' 628 

Increasing  of.  provisions   for 224,  590 

Steps  necessary  to  be  taken 224 

Increasing  capital.  Comptroller's   approval   necessary 225 

Increase  of,  how  affecting 688 

Increase,  limit  of  688 

Resolution  increasing,  form   of 689 

Certificate  of  increase,  form  of 689 

Increase  or  reduction  of,  when  valid 688 


764:  Index. 

CAPITAL  STOCK  — Continued:  page. 

State  banks  may  increase 227 

Must  liave  statutory  authority 227 

Statute  governs  227 

Individual   liability  as  shareholders 589 

Liabilities  of  an  association,  not  to  exceed  except,  on  account  of 

certain  demands 615 

Liquidation,   shareholders   owning  two-thirds   of,   may   vote  to   go 

-        into .- 623 

List  of  shareholders  of,  to  be  transmitted  to  the  Comptroller 617 

Loans  on  security  of  shares,  or  purchase  of,  prohibited 614 

Loans  restricted  to,  10  per  cent,  off 614 

Minimum  amovmt  required  of  national  banks 582 

Minimum  of  bonds  to 592 

Number  of  shares  and  amount  of,  stated  in  organization  certificate.  581 

Payment  of,   provisions  for 583 

Penalty  for  failure  to  make  good,  impairment  of 615 

Personal  liability  of  sliareliolders 589 

Receiver  may   be   appointed 61.5,  628 

Reduction  of " 229,  590 

Reduction  of,  how  effected 690 

Reduction,   limit  of    690 

Resolution  reducing,  form  of 690 

Certificate  of  reduction,  form  of 690 

Relation  of  bond  deposit  to 593 

Restoration  of,  when  below  the  minimum  required 584 

Shareholders  of,  list  to  be  kept  and  subject  to  inspection 017 

Shareholders   owning   two-thirds   of,   may   place   national   bank   in 

liquidation 623 

Shareholders  may  change  title  and  location 591 

May  increase   stock    590 

Owning  two-thirds  may  reduce  stock 590 

Owning  two-thirds  may  extend  corporate  existence 621 

Shareholders  entitled  to  one  vote  on  each  share  of,  held  of 580 

Shareholders  of  converted  State  bank  not  liable  when 589 

Shareholders  of,  not  consenting  to  an  extension  may  withdraw.  .  .  .  622 

Shares  of,  acquired  for  debt  to  be  disposed  of,  when 614 

State  banks  converted  into  national,  etc 589 

State  taxation  of  shares 618 

Subscriptions  to,  when  payable 583 

Subscription   list    675 

Temporary  certificate  of 675 

Capital  required  for  organization,  how  paid 675,  082 

Minimum   amount  of    674 

First  installment  of  675 

Form  of  certificate  of  payment  of  fir.st  installment 675 

Payment  of  other  installments  of 687 

Stock  set  free  belongs  to  stockholders 229,  230 

Steps  required  by  statute  in  reducing  or  increasing  capital  must 

be  followed  .  .' 231 

Certificate  of  reduction,  when  conclusive 231 

Distribution  lawful  when  capital  unimpaired 231 

Surplus  fund  of  national  bank  to  be  created  to  amount  of  20  per 

cent,  of 614 

United  States  registered  bonds  to  be  deposited  as  security  for  cir- 
culation, based  on 592 

When  increase  becomes  valid 590 

Withdraw  al  of  bonds  on  reduction  of 593 

Withdrawal  of  bonds  limited 594 

Extension  of  charter,  settlement  with  dissenting  shareholders....  711 


Index.  T65 

CASHIER:  page. 

General  duties  and  qualifications  discussed 1^^ 

Executive  oUicer  of  the  bank 1^*^ 

Inherent  powers ^*^ 

Duty  to  certify  checks 1-iO,  274 

Certifying  checks  where  no  funds,  effect  of 1^1 

Is  not  alone  clothed  with  power  to  certify l-^i 

Cannot  certify  his  own  check I'io 

Has  inherent  power  to  draw  drafts  and  checks 147 

Signing  as  au  individual,  effect  of 148 

Power  to  receive  offers 150 

Has  power  to  deal  in  bills  of  exchange 1-^1 

Has  charge  of  personal  property 152 

Unlawful   certification,   effect   of 274 

Penalty  for  illegal  certification _•  •    276 

Persons  may  assume  his  authority 152,  153 

Power  to  indorse  negotiable  paper 153 

Accommodation  indorsing 154 

May  indorse  negotiable  paper,  when 155 

Power  when  run  on  bank 15^ 

May  settle  with  depositors  if  bank  solvent 157 

Borrowing  money  for  bank _•  •    158 

Has  no  power  to  borrow  unless  authorized 158,  167 

Inherent  power  to  collect  debts 167 

Implied  authority  to  release  mortgage 167 

Liability  generally   168 

Responfe'ible  for  subordinates,  when •_•  •    169 

Penalty  under  section  5187,  R.  S.  U.  S 170,  171 

Notice  to,  wlien  notice  to  bank •_•_■    1^2 

Declarations  and  admissions  of 175,   176 

Acts  away  from  bank 176 

Limitation  of  powers  generally ^^J 

May  refuse  deposit 1;J_^ 

Has  no  inherent  power  to  compromise  claim 178 

Has  power  to  buy  and  sell  exchange 146 

Appointment  of    ( national  bank ) 581 

Bank  examiner  may  examine  on  oath 619 

Bond,  assignments  by   593 

Certificate  of  officers  and  directors 584 

Certificate  of  stock  payment 583 

Circulating  notes,  to  sign. 596 

Election  or  appointment  of 581 

Embezzlement  by   642 

Examiner  of  "own  bank  cannot  be 619 

Expiration  of  corporate,  certification  by 625 

Extension  of  corporate  existence,  certification  by 621 

False  certifications  of  checks 641 

Incomplete  circulation,  provisions  relative  to 603 

Increase  of  stock,  certification  of 590 

Liquidating  bank,  duty  in 624 

Loans  on  United  States  or  national  bank  notes 615 

Penalty  for  unauthorized  acts 636,  640,  641,  642,  659 

President  or  Vice-President,  and  to  sign  circulation 596 

Protest  of  circulation,  waiving  notice  of 625 

Proxy,  not  to  act  as 586 

Reports  of  condition  verified  by 617 

Reports  of  earnings  and  dividends  verified  by 618 

Shareholders,  lists  of,  by 617 

Signature  of,  forged,  are  wanting,  not  to  invalidate  circulation ....    603 

Taxable  circulation,  returns  by 604 

Unauthorized  circulation,   returns  by 606 

Voluntary  liquidation,  certified  by 624 


766  Ia-dex. 

CERTIFICATION.      (See  Checks.)  page. 

CERTIFICATE : 

liJATIO^'AL  BANKS. 

Certified  copy  of  organization,  evidence 643 

Comptrollers   of,   authority 585 

Converted  State  banks    588 

Destruction  of  notes   598 

Execution  of  organization 581 

Extension  of  corporate  existence 622 

Increase  of  stock,  valid,  when 590 

May  be  Avithheld,  when 595 

Officers  and  directors 584 

Organization,  to  specify  581 

Payment  of  installments  of  stock  to  be  certified 583 

Publication  of  Comptroller's,  of  authority 585 

Reduction  of  stock,  valid,  when 590 

Seal  of  Comptroller,  evidence 643 

Voluntary  liquidation 624 

Certification  of  checks,  when  forbidden 641' 

Stock,  to  whom  issued 680 

Installments  of  capital  stock  paid  in,  etc 682,  687 

Officers  and  directors,  before  commencing  business 682 

PajTiient  of  capital,  etc..  form  of 682,  687 

Increase  of  capital,  form  of 689 

Authority  to  commence  business 686 

Publication  of,  authorizing  bank  to  begin  business 686 

CERTIFICATES  OF  DEPOSIT: 

Defined  to  be  promissory  note 314 

State  courts  holding  that  they  are 316 

State  courts  which  hold  the  negative 316 

Statute  of  limitations,  running  against 318,  503 

Interest  on 320 

Authority  of  banks  to  issue 320 

Repayment  of  certificate  by  bank 321 

CHAXGIXG  XAME  OF  BANK: 

Adopting  new  name   232 

Statute  prescribes   mode    232 

In  national  bank,  consent  of  Comptroller  necessary 232 

Does  not  release  bank  of  liability 233 

Does  not  afl'ect  its  contracts 234 

Name  of  friendly  corporation  cannot  be  taken 233 

Injunction  may  prohibit 234 

Of  national  bank,  provisions  relative  to 706 

CHARTER : 

Of  State  bank,  how  amended 215 

Is  a  contract  between  incorporators  and  State 216 

Bank  may  forfeit,  for  accepting  deposit  in  violation  of  law 243 

National  may  extend 530 

Amendment  of  articles  restricted  in  national  bank 590 

Charter  number  to  be  printed  on  circulation 597 

(See     Certificate,     Corporate     Existence,     Extension     of,     and 
Liquidation.  ) 

CHECKS : 

Defined 262 

Date  important  263 

Must  be  drawn  on  a  bank 266 

Payable  to  person  named  is  negotiable 265 

Payable  to  fictitious  person  is  held  to  be  transferable  on  delivery.  .  26^ 


Index.  767 

CBECKS  — Continued:  page. 

Must  be  for  definite  sum  of  money 2G5 

Must  be  signed  by  the  drawer 2GG' 

Place  or  signature  on  instrument  immaterial 266 

May  be  made  non-negotiable 267 

Delay  in  presentment,  effect  of 267,  290 

Diligence   in   presentment 267,  268,  437 

Diligence  required  to  bind  indorser 268 

When  not  overdue   269 

Holder  of,  rights  against  bank 260 

Holder's  remedy  against  drawer 269 

Certification   of,  defined    274 

Who  may  certify 274 

Rights  of  holder 277 

Drawer  of  certified,  when  released 277 

Has  no  days  of  grace 266 

Certification  of,  when  may  be  corrected 279 

President  and  cashier  have  inherent  power  to  cei'tify 279 

Assistant  cashier  and  tellers  may  certify  when  authorized 279 

General  rule  as  to  certification 280 

When  bank  stopped  from  denying  forged  certification 280 

Bank  can  correct  mistake,  vchen 280 

^Memorandum 280 

Post-dated 281 

Bank  bovmd  to  honor,  when 284 

Nature  of 285 

Issuing  of,   not   pajTiient 285 

Revocation  of 286 

Oral  notice  may  be  given  to  revoke 288 

Written  notice  to  revoke  may  be  required  and  is  binding 289 

Mistake  of  bank  in  payment  of 292 

Bank  paying  forged  check 296 

Right  of  bank  against  presenter  of  forged  paper 299 

Alteration  after  signing  and  uttering 301 

Right  of  possession  after  pa^mient,  who  entitled  to 304 

Present  rule  governing  right  of  possession 305 

Eqviitable  and  best  rule  as  to  right  of  possession 305 

Statute  of  limitation  runs  against,  when 503 

Notice  to  teller  not  to  pay 185 

When  does  not  become  a  deposit 185 

Bank  liable  for  failure  to  pay 239 

jMust  be  paid  in  order  of  presentment 257 

!Must  be  paid  in  money 258 

May  be  paid  by  draft." 258 

May  be  paid  by  substitution  of  certificate  of  deposit 258 

Payment  may  be  refused  if  not  dated 258,  263 

Paying  (deposit)   on  oral  order,  bank  takes  risk.  .' 259 

Of  insane  person  invalid 259 

Writing  on,  prevails  over  figures 259 

Payment  stopped  by  insolvency  of  drawer 261 

Payment  stopped  by  assignment  of  drawer 261 

For  certification  of.  unlawful .  _. 641 

Falsely  certified,  an  obligation  of  association 641 

Penalty  for  false  certification  of,  by  national  bank 641 

CIRCULATION,  NATIONAL  BANK: 

Amount  of,  obtainable   595 

Amount  of.  obtainable  by  gold  banks 508 

Association  may  issue 581 

Association  to  receive  interest  on  bonds  of,  as  long  as  honcjred 594 


768  Ii^DEx. 

CIRCULATION,  NATIONAL  BANK  —  Con  tinued :                                    page. 
Association  consolidating,  deposit  of  lawful  money  to  retire,  un- 
necessary    624 

Associations  to  redeem,  in  lawful  money  on  demand 612 

Bonds  in  excess  of  amount  required  may  be  withdrawn 593 

Bonds  forfeited,  when  dishonored 626 

Bonds,  United  States,  to  secure 592 

Certificates  of  destruction,  by  whom  executed 598 

Charter  number   on 597 

Collection  of  tax  on 605 

Consolidating  banks 629 

Cost  of  engraved  plates  to  be  paid  by  association 599 

Counterfeiting,  etc 636,  640 

Countersigning  vmlawfully 636 

Deposit  of  United  States  bonds  to  secure 584,  592 

Deposit  of  bonds  to  be  increased  when  capital  is  increased 593 

Destroyed,  to  be  replaced  by  an  equal  amovmt  of  new  notes 599 

Disposition  of  redemption  account  balances 602 

Examination  of  bank  upon  protest  of,  by  agent  of  Comptroller ....  626 

Expense  of  plates  for  new  notes  of  extended  banks 601 

Expenses  of  redeeming,  withdrawn 001 

,      Expenses  of  redemption,  how  paid 599 

Extended  bank,  shall  differ  from  prior  issues 601 

For  what,  is  receivable 597 

Fraudulent  notes  to  be  so  stamped 603 

Gain  from  lost  and  destroyed 601 

Gold  bank,  to  be  redeemed  in  gold  coin 598 

Government  depositaries  to  receive,  at  par 656 

Inscription  on 596,  598 

Increasing  capital  .stock,  use  of,  prohibited 615 

Limit  on  aggregate   amount   of 595 

Liquidating  bank  to  deposit,  lawful  money  to  redeem 624 

Maximum  deposit  of  bonds  required 592 

Minimum  deposit  of  bonds  required 592 

Notice  of  redemption  of,  to  be  forwarded  to  bank 599 

Other  prohibited,  for  national  bank 603 

Penalty  for  failure  to  make  return  of  taxable 604 

Pledging  as   security,  prohibiting 615 

Preparation  of 505 

Profit  on  unredeemed 601 

Proceedings  when  return  is  not  made 607 

Prohibition  against  circulation  imcurrent  notes 616 

Proportion   to  bonds,   deposited 595 

Proportion  to  capital 592 

Protest  of 625 

Receivable  at  par  by  all  national  banks ' 603 

Redeemed  to  be  cancelled 602 

Redemption  fund  of  5  per  cent 599 

Redemption  of,  in  United  States  notes 599 

Redemption   of,   extended   bank 601 

Redemption  of,  liquidating  banks 601 

Redemption  of,  closed  banks 602 

Redemption   of,   incomplete 603 

Refunding  excess  tax    605 

Restriction  of  taxable  provisions 607 

Semi-annual  return  of,  subject  to  tax 604,  606 

Statement  concerning  of  closed  banks,  etc 579 

Securities  exempt  from  local  taxation 607 

Tax  on  604.  606.  607,  631 

Treasurers  and  public  depositary  to  return  all,  of  closed  banks.  .  . .  602 


Index.  769 

CIRCULATION,  NATIONAL  BANK  —  Con t inued :  page. 

When  exempt  from  tax <J05 

^Yllen  issuable  as  money 605 

Withdrawal  of,  by  depositing  lawful  money GOO 

Worn  out  or  mutilated,  destroyed 098 

Denominations  and  anioimts  issuable 084 

Design  for  extended  charters 703 

Cost  of  plates  for 703 

CITIZENS: 

National   banking  associations,  where 042 

CLEARING  HOUSE: 

Defined 24 

History   of    532 

Character    and   object    of 533 

Organizatioir  of 536 

Not  a  corporation 536 

Rules  of 537 

Non-member  bank  not  affected  by  rules 537 

Settling  daily  exchanges 538 

Presentment  of  collection,  through 539 

Effect  of   customs 540 

Settlement  between  banks 540 

Check   paid   under   mistake.     Rule 540 

Forged  checks,  passing  through 541,  553 

Bank's  liability.     Negligence 541,  553 

Rights  of  drawee  bank  against  payee  in  indorsing  forged  check.  .  .  553 

Member  of,  representing  bank,  not  a  member 555 

How  clearing  house  may  sue  and  be  sued.  .  ." 566 

Incidental  powers 556 

May  is.sue  certificates 558,  559,  560,  561 

Certificate    is.sued   by,    counted    as    i-eserve 610 

Receipts  in  settlement  of  balances  of  gold  and  silver  certificates,  by  611 

CLERKS : 

Of  banks   cannot   act   as   proxy 586 

COIN : 

Authority   for   coining 721,  733 

Gold  and  silver  not  redeemable 738 

COINAGE : 

Of  gold 741 

Of  silver 741 

Authority.     Table , 747 

Coin  and  paper  in  circvilation   (see  table) 748,  749,  750 

COLLECTIONS : 

Subject  treated 408 

Relationishp  existing  between  parties 408,  410 

Indorsement 409 

Form  of  indorsement 409,  422 

When  bank  becomes  bailee  of 410 

Payable  at  a  specific  bank 416 

Law  of  place  governs  relation 417 

Usage  and  custom 417 

Rule  as  to  title  of  paper 420 

Blank  indorsement 424 

Owner  of  paper  may  revoke 424 

Lien  of  bank  on 425 

Authority  of,  to  make • 426 

'  49 


770  IXDEX. 

COLLECTIONS  —  Continued :  page. 

Bank  suing  in  its  own  name 431 

When  bank  may  renounce  its  authority  to  collect 433 

Duty  of  collecting  bank 434,  430 

Presentment 437 

Protest,  bank's  duty 438 

Bank  accepting  pa\Tnent  of 438 

Duty  of  bank  to  collect  interest 441 

Bank's  liability  as  indorser 441 

When  bank  liable  for  fraud  or  mistake 443 

Liability  of  initial  bank 445,  471 

Negligence  in  selecting  agents 445 

Must  select  suitable  agents 445 

Who  are  suitable  agents 445 

Employing  notaries 447 

OfBcer  of  bank  acting  as  notary 448 

Initial  bank's  liability  for  default  of  its  agents 450 

States  sustaining    rule    that    initial    bank    is  liable  to  owner  of 

paper 464,  4G5 

Modified  and  accepted  I'ule  as  to  liability  of  initial  bank 405 

States  sustaining  modified  rule 405,  40G 

Review  of  discussion  on  rule 460 

When  correspondent  bank  liable  to  initial  bank 408 

Where  paper,  total  loss 408 

Proceeds  of  collection,  rights  of  creditor 469 

Insolvency  of  initial  bank  aflTecting  proceeds 409 

When  collection  is  completed 470 

COMMERCIAL  PAPER : 

Discount  of,  national  bank 013,  015 

COMPTROLLER  OF  THE  CURRENCY: 

Appointment,       duty,      authority       and      power      over      national 

bank ". " 577  to  028 

COMPENSATION: 

Directors  entitled  to,  when 110 

President  of  bank  entitled  to 134 

Savings  Bank  v.  Barnes,   104  Cal.  473 134 

CONGRESS : 

Comptroller's  report  to  be  made  to 579 

CONSOLIDATION  OF  NATIONAL  BANKS: 

Pi'ovisions  regarding  liquidation  and  bonds 624 

Liquidation  of 709 

(See  Liquidation.) 

CONVERTING  STATE  INTO  NATIONAL  BANK: 

Steps  to  be  taken 207,  208,  694 

Incorporated  banks  only,  can  be 208 

Corporate  relation  to  old  bank  after  reorganization 209 

State  bank  may  not  lose  charter  through  conversion.  .  .* 211,  213 

Suits  may  be  brought  by  old  bank 211 

Liabilities  of  national  bank  after  conversion 212 

Authority  of  shareholders  for 694 

Corporate  papers,  forms  of 694.  699 

State  banks  converted,  instructions  relating  to 588  to  007 

CORPORATE  EXISTENCE: 

Extension  of,  national  bank 621,  699 

Re-extension   of.  national  bank 622,  623,  703 

Liquidating  not  terminating 625,  711 

State  bank,  term  of  existence 33 


I^STDEX.  771 

CORPORATE  POWERS.      (See  Powers.)  page. 

CORPORATION : 

Association  and  national  association  become  a,  when 581 

State  bank  becomes  a,  when 51 

COUNTERFEITS: 

Making  or  using  notes,  plates,  tools,  etc G37,  639,  738 

COUNSEL.     (See  Employing  Counsel.) 

CREDITORS: 

Rights,  liabilities,  etc 617  to  641 

Bank  disputing  claim 1 1 

Claims  are  bills  against  shareholders 035 

CREDIT: 

Bank  allowing,  beyond  amount  deposited  creates  overdraft 308 

311,  312 

CRIMES,  JURISDICTION,  ETC. : 

Counterfeiting  circulation .   637 

Dealing  in   counterfeit   circulation 640 

Evidence,  certified  copy  of  organization  certificate 643 

Evidence,  sealed  certificate  of  Comptroller  competent 643 

False   certificate  of   checks 641 

Having  or  taking  unauthorized  impressions  of  tools,  etc 039,  640 

Illegal  possession   or  use  of  material   for  circulation 638 

Imitating  circulation  for  advertising  purposes 637 

Improper  countersigning  or  delivering  circulation 636 

Indian  Territory 644 

Issuing  circulation  of  expired  associations 640 

Jurisdiction,  general,  of  national  bank  cases 642 

Jurisdiction  to  enjoin  Comptroller  or  receiver 642 

Mutilating  circulation 637 

Obligations  of  the  United  States  defined 638 

Official  malfeasance 642 

Passing  coimterfeit  circulation 639 

Pledging  United  States  notes  or  bank  circulation 636 

Suits  against  United  States  officers  or  agents 643 

Taking  unauthorized  impression  of  tools,  etc 639 

CU^MULATIVE  VOTING: 

Not  permissible 681 

CURRENCY.  (See  Circulation;  Gold;  Gold  Certificates;  Silver; 
Silver  Certificates;  Lawful  Money;  United  States  Notes; 
Certificates.) 

CURRENCY  BUREAU: 

Designation  of  office  of  Comptroller  of  the  Currency 577 

Expenses  of.  in  liquidating  failed  banks 577 

Offices,  vaults,  etc.,  for 573 

Submission  of  lists  of  employees 573 

CUSTOM: 

Inherent  power  may  be  acquired  under 140 

DATE :  D. 

Check  must  have 263 

DEALING   IN  COMMERCIAL  PAPER: 

Distinction  between  discount  and  purchasing 363 

Discounting  not  purchasing 361 


772  I]si>Ex. 

DEALING  IX  COMMEECIAL  FAFEB.  — Continued:  page. 

National  bank,  authority  discussed 3G1,  3(58 

State  commercial  banks  have  power 369 

Limitations  against  savings  banks 360,  370 

DEALING  IN  REAL  ESTATE : 

Provisions  of  national  banlc  law 374,  375 

May  own  banking  house 374 

Power  to  hold ." 377,  378,  379 

Limitation  as  to  time  of  holding 37T> 

Banks  have  no  power  to  buy  for  profit 379 

When  investment  is  a  breaeli  of  bank's  power 380 

Construction  of  five-year  limitation 382 

DEALING   IN   STOCKS  AND   BONDS: 

National  bank  no  authority  to  deal  in,  as  agent 355 

National  cannot  act  as  a  broker 355 

National  may  act  as  an  agent,  when 358 

Power  to  hold  as  collateral 356 

Commercial  State  bank  authority,  when 359 

Savings  banks,  limitations  against 359 

Statute  may  jjrohibit 359 

DEBTS,  COMPOUNDING  OF: 

Real  estate  keld  for 613 

(See  Ba>-ks  Bobrowi^g. ) 

DE  FACTO  CORPORATION: 

Bank  may  act  as  such,  when 43 

DEFAULT.      (See  Officebs.) 

DENOMINATIONS,  NATIONAL  BANKS : 

Circulation  of  gold  banks 598 

CirculaLiun  of  national  banks 506 

Converted  State  banlc  shares 588 

Gold  certificates 611 

Sliares  of  national  bank  stock 583,  588 

United  States  notes  certificates 610 

DEPOSIT    OF    UNITED    STATES    BONDS.      (See    BoxDS,    United 
States.  ) 

DEPOSITARIES.      (See  Go\-erxme>-t  Depositaries.) 

DEPOSITS: 

Nature  of 235,  236 

General,  defined 235,  244 

Special,  defined 235,  240 

Distinction  between  general  and  special 236,  241 

IMay  be   received   luider   contract 2S6,  248 

May  be  paid  to  party  specifically  named 237 

TrU'it  deposit  placed  to  private  account 237 

Relation,   when   established 237 

Trust  funds  must  be  protected 237 

When  not  a  loan  to  bank 239 

Bank  receiving,  when  embarrassed,  may  not  be  a  fraud 239 

^Yhen  check  does  not  become 239 

Cashier  taking   special   authority  questioned 242 

In  absence  of  authority  cashier  cannot  accept  special 243 

Special,  when  lost,  degree  of  liability 242,  245 

Accepting  special,  purely  incidental  power 243,  244 

If  special,  the  identical  thing  must  be  returned 251 


IxDEx.  7  73 

DEPOSITS  —  Continued :  page. 

Paper  becomes  a  deposit,  wiien 244 

Special  may  be  cliuuyed  to  a  geiifial  one 253 

Deposit  and  withdrawal  of  public  moneys 657 

Reserve  to  be  kept  oa 609,  612 

State  banks  may  hold  public  moneys,  unless  prohibited 372,  373 

When  and  how  repaid 254,  255 

Contract  in  writing  not  necessary  for  repayment 254 

If  deposited  in  firm  name  should  be  repaid,  how 254 

Written  order  to  repay  called  checks 255 

May  be  repaid  on  oral  order 256 

Payment  mu.st  be  in  current  funds 256 

Payment  may  be  demanded  without  written  order 259 

May  be  repaid  on  telegraphic  order 259 

Payment  of  trust  funds 259 

Bank  must  protect  trust  funds 260 

Real  owner  entitled  to 260 

Minors  may  withdraw 2643.  261: 

Parent  or  guardian  may  claim  deposit  of  minor 261 

Process  of  law  may  stop  payment 261 

Death  stops  payment,  when  known  to  the  bank 261 

Relation  of  depositor  in  mutual  .savings  banks 477 

Depositor  has  no  liability  in  capitalized  savings  banks 479 

Special  deposit  in  savings  banks 480 

Notice  of  withdrawal  may  be  required  by  savings  banks 481 

When  may  be  recovered 523^  525 

DEPUTY  COMPTROLLER: 

Appointment,  bond,  duties,  oath,  salary 578 

DIRECTORS: 

Duties  and  responsibilities  of 83 

Of  national  banks 88 

Election  of,  in  national  bank 89,  581,  680 

Qualifications  of,   national  bank 89,  586,  681 

Oath  required  of,  in  national  bank , 89,  586,  680 

Of  State  bank 90 

Of  national  bank,  President  must  be  a 90 

Meetings  of 91 

Place  of  meeting .  .  .  .' 91 

Notice  of   meeting 91 

Number  necessary  for  quorum 92 

Of  national  bank,  must  act  as  a  unit 92 

Elect  officers 92 

Vacancies  in  board,  how  filled 92,  93 

Duties   which   cannot   be    delegated 93,  95 

Have  exclusive  authority  to  make  discounts .  93 

May  pass  resolution  authorizing  officer  to  make  a  loan 94 

Exclusive  power  to  sell  property  of  bank 95 

Statute  may  authorize  directors  to  increase  or  diminish  capital.  .  .  96 
Cannot  alter  an  assessment  on  shares  of  stock  in  national  bank  for 

impairment  of  capital   96 

Cannot  give  away  property 96 

Cannot  settle  with  cashier  for  his  deficits 96 

No  power  as  a  lx>ard  to  assume  debts  of  otliers 96 

Held  to  be  trustees 97,  100 

Cannot  make  profits  for  themselves,  when 97 

IMay  require  bond  of  officers  and  clerks 9S 

Held ;  duty  to  require  bonds 98 

Power  to  release  a  debt 98 

Releiising  a  subscriber  to  capital  stock,  questioned 99 

But  may  make  settlement  with  subscriber 99 


774:  Index. 

DIRECTORS  —  Continued :  page. 

May  sell  proijerty  to  satisfy  preferred  creditor 99 

May  remove  employees  for  cause  in  State  banks 99 

May  remove  without  cause  in  national  bank 99,  100 

Cannot  use  bank  funds  to  pay  attorney,  when 101 

May  borrow  funds  from  bank  when  not  prohibited 101,  102 

Notice  to  board 103 

When  law  imputes  knowledge 104 

Notice  received  in  official  capacity 104 

Must  have  actual  notice 109 

When  chargeable  with  knowledge  against  himself 110 

Liability   of    HO,  630 

Degree  of  care  required 1 1 1 

Acting  in  good  faith .' 1 1 1 

Declaring  "dividends    _ 112,  614 

Excuses  of   112 

Compensation  of 116 

Embezzling     funds     may     be     a    cause     for     forfeiture     of     bank 

charter 512,  630 

Liable  for  losses,  when 512 

Attestation  of  reports  to  Comptroller  by 617 

Assessment  provisions  for  enforcement  of 616 

Capital  impaired,  duties  in ." 583 

Certificate  of  officers  and 584 

Certificate  of,  to  extension 621 

Conversion  of  State  bank,  action  by 5SS,  694 

Embezzlement,   penalty    642 

Enforcing  payment  of  capital 583 

Exception  on  Oklahoma   586 

Failure  to  hold  annual  election 587 

Names  and  residences  of,  to  be  ascertained  by  Comptroller 584 

Number  and  election  of 585 

Oklahoma,  qualification  of  national  bank  in 586 

Penalty  for  issuing  circulation  of  expired  association 640 

Penalty   for  offical   malfeasance 642 

Penalty  for  unauthorized  receipt  of  public  monej^ 659 

President  of  board  in  national  bank  to  be  a 587 

Powers  of 581 

Proxy  cannot  act  as 586,  619 

Vacancies  in  board  of 587 

Board  of,  may  be  named  in  articles 678 

Specify,  or  minimum  and  maximum,  number  of,  must  appear  in 

articles 678 

Oath,  forms  of    680 

Are  officers 681 

Votes  of  shareholders  in  election  of 681 

Appointment  of  liquidating  agent  by 708 

DISCOUNTS : 

Directors  have  exclusive  power  to  make 360,  362 

Rediscounting  not  borrowing 360 

Can  authority  to  make  be  delegated  ? 360 

P.ank  rediscount  only  a  contingent  liability 361 

Court  discusses  question 361 

(See  Loans.) 

DISSENTING  SHAREHOLDER : 

In  national  bank,  withdrawal,  extension 622 

DISSOLUTION: 

Voluntary  liquidation   528 

Authority   of  officers   in  charge 528 


Index.  775 

DISSOLUTION  —  Continued :  page. 

Liquidation  does  not  dissolve  corporation 528 

Liquidation  dividends    529 

(See  Insolvency.) 

DISTRICT  OF  COLUMBIA: 

Supervision  of  banks  in,  authorized  by  Congress,  by  Comptroller.  .  620 

DIVIDENDS: 

Cannot  be  declared  out  of  capital 112 

Rules  ffoverning-  in,  insolvency 520 

In  liquidated  bank  belongs  to  shareholders 529 

Comptroller  to  make  ratable  of  assets  of  insolvent  bank G29 

Directors  of  national   bank  may  declare,  when 614 

Earnings  of  national  bank  to  be  reported 618 

Penalty  for  failure  to  report  earnings 618 

Restriction  on  association's  liability 615 

Unearned,  prohibited  615 

DONATIONS : 

Banks  cannot  make,  except  through  stockholders 388 

DRAFTS : 

Cashier  has  inherent  power  to  draw 140 

Obligations  of  L'nited  States  including 6.38 

Official  maiftasance 642 

Liability  of   association   relative  to 615 

Penalty  for  mutilating   6.37 

DUTIES: 

Special  deposit,  when  lost;  duty  of  bank 242 

Associations  organized  under  act  of  February  25,  1863 591 

Circulation  converted  State  banks 607 

Circulation  enforcing  payment  of,  on 605 

Circulation  exempt  from 605 

Circiilalion  not  receivable  for  customs 597 

Circulation  refunding  excess  on 605 

Circulation    restrictions   on 607 

Circulation  semi-annual  on 604 

Circulalion  unauthorized    606 

Comptrollers 577 

Deputy  Comptrollers   578 

Directors 585,  586 

Examiners • 619 

Gold  certificates  receivable  for 611 

Notes,  etc.,  other  than  national  bank  circulation 607 

Public  depositaries,  designation  and 656 

Receiver,  appointment  and 628 

Shareholder's  agent   633 

E. 
ELECTIONS.  NATIONAL  BANK: 

Change  of  title  or  location 591 

Corporate  poAvers 581 

Extension  of  corporate  existence 621,  703 

Failure  to  hold  annual 587 

Increase  of  stock 590 

Reduction  of  stock 590 

Shareholder's  agent 631 

Voluntary  liquidation 623,  624 

Directors,  oath,  oualification,  etc 586 


776  I]S'DEx. 

EMBEZZLEMENT.      ( See  CEiiiES. )                                                                 page. 
Penalty  for 642 

EMPLOYTXG  COUNSEL: 

Authority  vested  in  whom 3S7,  388 

EVIDENCE : 

Certificate  of  incorporation  pi'oof 50,  G-43 

EXxUIINATION  OF  BANKS : 

Checking    up    of 5G7 

Compensation  of  national  bank  examiner 619 

exa:\iinations  : 

Of     national     bank,     preliminary     proceedings     before     beginning 

business    584 

Extension   of   corporate   existence 702 

Annual,  of  bonds    594 

Ascertainment  of  value  of  stock  of  dissenting  shareholders 622 

Bonds    and    records,    provisions    for 594 

Compensation  of  national  examiners 619 

Examiners    to    make 620 

Limitation   of   visitorial    powers 620 

List  of  shareholders  subject  to 617 

Plates    and    dies    annually 597,  6S5 

Preliminary    to    beginning   business 584 

Qualification    of    examiners 619 

Special,  of  extended  associations G32 

Appointment    of    examiners 619 

EXCUSE : 

Of   directors    112 

EXECUTOR : 

Holding  stock  as   such  not  liable 80,     81 

(See  Teustees.) 

EXTENSION  OF  CORPORATE  EXISTENCE: 

OF  NATIONAL  BANK. 

Extension    of 621 

Term  of,  corpoi-ate  of  national 'banks 581 

Amendment    for     699 

Expiration  of  charter,  liquidation  as  a  result  of 706 

Publication   of  notice   of 709 

Shareholders    may    authorize 700 

Power  of  attorney  for,  form  of 700 

Two-thirds   of  stock  must  consent  to 699 

Shareholders  not  assenting  to,  must  be  paid  for  their  stock 704 

Administrators,    etc.,    voting    for ^  703 

Examination  before 703 

Circulating  notes,  issue  of,  in  case  of 703 

Re-extension  authorized 623,  704 

Transfer  of  bonds  not  necessary  in  case 703 

Officers'   bonds,   renewal   of 704 

EXPENSES : 

Relating  to  national  bank.  .    579,  583,  597,  599,  600,  601,  604,  619,  620 

022,  627,  632 
F. 

FALSE  ENTRY,  NATIONAL  BANK: 

Penalty   for  official  malfeasance G42 


Index.  T77 

FORFEITURE  OF   CHARTER:  page. 

Of  franchise 508,  513 

Acts  wliicli  may  work  forfeiture 508,  509 

Xon-user    of    charter 509 

^YiIful  violation  of  law 510 

Taking  usurious  interest  may  be  cause  for oil 

Mismanagement   may  be   cause    for 512 

Doing  business  not  authorized 513 

FORGED  PAPER: 

Riglit   of  bank   against   presenter   and   owner   of 299,  300 

Bank  paying  on  forged  indorsement 296 

( See  Crimes  ;  Penalties.  ) 

FRAUDULENT  NOTES: 

United  States  and  national  officers  to  mark 603 

G. 
GIFT: 

Bank  can  make  only  through  stockholders  directing 389 

GOLD: 

Certificates  not  to  be  issued  when  reserve  of  gold  coin  and  bullion 

is  depleted   611 

Circulation  of  gold  bank.s  redeenvable  in 598 

Deposit   of,   for   certificates 611 

CJold  banks  not  required  to  take  circulation  of  other  banks  at  par.  603 

Ciold  l^anks,  issue  of  circulation  by,  payable  in 587 

Issue  of  certificates  of  deposit  of 611 

Organization    of    gold    banks 587 

Reserve  in  Treasury 611 

Reserve  of  gold  banks  to  be  silver  and 611 

Taxation  of,  by   State,  etc 607 

GOLD  BANKS: 

Circulation  of,  issuable 598 

Conversion  of 587 

Deposit  of  bonds  by 598 

Exempted  from  provision  relative  to  other  bank  circnlation 603 

Organization  of 587 

Reserve  required   for 611,  612 

Tax  on  circulation 604 

GOLD  CERTIFICATES: 

Deposit  of  gold  for Oil 

Issue  of,  prohibited,  when 611 

Minimum  denomination 611 

Receivable  for 611 

Gold  reserve  in   Treasury 755 

Gold  certificates  not  to  be  issued  when  depleted 611 

GOVERNMENT  DEPOSITARIES : 

Deposit  and  withdrawal  of  public  moneys 657 

Deposits  by  certain  postmasters 057 

Designation  and  duties  of 656 

National  bank  as 656 

National  bank  circulation  to  be  receiA'ed  by 656 

National  bank  as  financial  agents  of 656 

Penalty  for  misapplication  money  order  funds 657 

Penalty  for  unautliorized  deposit  of  public  moneys 658 

Penalty  for  imauthorized  receipt  or  use  of  public  moneys 659 

Secretary  of  Treasury  to  designate 656 

Securities  to  be  deposited  by . 650 


778  Index. 

GRACE,  DAYS  OF.      (See  Checks.) 

GUARANTY :  PAGE. 

Where  bank  may  make 399 

GUARDIAN: 

Holding  stock  as  such  not  liable 80,  81 

(See  Trustee.) 

I. 

INCIDENTAL  POWERS.      (See  Bank  Po%vebs.) 

INCREASE  OF  CAPITAL,  NATIONAL  BANK: 

Resolution  for 689 

Certificate  of G89 

Valid,  when    688 

INCOMPLETE  CIRCULATION.      (See  also   Cibcul.\tion. ) 

Redemption  of 603 

INDORSEMENT: 

Negotiable   paper    153 

Forms   of,    effect   of 153 

INDORSER.      (See  Notes,  Bills,  Checks  axd  Drafts). 

IGNORANCE : 

Excuses     112 

INJUNCTIONS.      (See  CoiiPXROLLEB's  Suits.) 

INSANITY.      (See  Checks:  Deposit-.  Stocks;  Patiient.) 

INSOLVENCY : 

Defined     514,  525 

"  Solvent,"  '■  In  failing  circumstances,"  defined 517 

Rule  applicable  to 520 

Debtor   insolvent,   when 520 

Definition  of  word  "  means  "  "  to  pay  debts  " 521 

Bank  taking  deposit  when  insolvent 522 

Knowledge  of  insolvency,  what  constitutes 522 

Interest    continues    to    run 526 

Dividends,   rule  governing 526 

Debts  due  savings  banks 527 

In  national  bank  assets,  distribution  of,  by  receiver 629 

General    jurisdiction  to  national  bank  cases 642 

Impairment  of  capital 615 

Jurisdiction   of   courts 642 

Notice  to  creditors  of  associations  in 629 

Penalty  for  issuing  circulation  of  associations  in 640 

Preference  of  creditors 635 

Receiver,  appointment  of 628 

Receiver,   duties   of 628 

Receiver,  when  may  be  appointed 628 

Redemption  of  circulation  of  association  in 602 

Shareholders'  agent    632,  633 

Taxes   on   bank   in,   remitted 631 

IN^TEREST: 

In  bank  by  Comptroller  prohibited 578 

By  Deputy  Comptroller 578 

Bonds  deposited,  how  paid 683 


Index.  779 

IXTEREST  —  Continued :  page. 

Taking  interest  in  violation  of  law,  ground  of  forfeiture  of  bank's 

charter 511 

Bank  may  be  indicted  for  taking 505 

J. 

JUDG]\IENT: 

Release  of  legal,  when  ordered  by  directors 120 

Appointment   of   receiver 628 

Illegal  preference  of  creditors G35 

K. 

KNOWLEDGE.      (See  Notice.) 

L. 
LAWFUL  MONEY: 

Defined 059 

Defined   for  gold  banks Gil 

Exemption  of  circulation  from  taxation,  when  deposited 005 

Expiring  association  to  deposit 025 

Extended  banks  to  deposit • 001,  703 

Five  per  cent,   funds 599,  002 

Forfeiture  of  bonds,  failure  to  redeem  circulation  in 026 

Liquidating  association  to  deposit 624 

Liquidating  association  consolidating,  not  to  deposit 024 

Payment    of    protested    circulation    in 027 

Receiver  to  be  appointed  for.  failure  to  maintain  reserve  of 028 

Redemption  accoimt,  distribution  of 002 

Redemption  account,  reserve  to  be 009 

Withdrawing  circulation,  deposit  of 000 

Balances   with   agents 009.  012 

Clearing   house   certificates 010 

Gold   banks   Oil 

Five  per   cent,   fund 010 

Lawful  money  on  hand 009 

Maintenance   of    009 

Receiver,  for  failure  to  maintain 009 

Reserve  agents,  proportion  with 610 

United  States  notes  certificates 610 

LEGAL  TENDER: 

Defined 059 

Money  constituting 730,  745 

LENDING  CREDIT: 

When  bank  prohibited  from 398 

Where  bank  may  make  a  guaranty 399 

Guaranty  of  bank,  when  acts  are  ultra  vires 400 

LIABILITY : 

Bank  not  liable  for  misapplication  of  trust  funds,  when 237 

Banks    colluding   with    trustees 238 

Bank    liable    for    gross    negligence 242,  243 

Bank  liable  for  failure  to  select  suitable  agents 445 

Associations  for  pledging,  etc..  United  States  notes,  etc 036 

Converted  State  banks  for  old  notes 607 

Creditors'  bill   against  shareholders 635 

Estates   owning   stock   subject   to 589 

False   certification   of   checks 641 

Individual,  of  directors 630 

Limited  to  amount  of   capital   except 615 


780  Index. 

LIABILITY —  Continued:  page. 

Personal,  of  shareholders 589 

Eestrictions    on    015 

Shareholders'  agent • 032,  033 

Shareholders   debarred   from   voting 586 

Shareholders   exempt   from,   when 589 

Trustees  exempt  from,  Avlien 589 

LIABILITIES,  NATIONAL  BANKS: 

Associations  organized  imder  act  of  Febrviary  25,  1803 591 

Change  of  title  or  location  not  to  afiect 591 

Comptroller's    report    to    contain   statement    of 579 

Converted   State   bank 0U7 

Deficiency  in  reserve  not  to  be  increased 609 

Deposit  of  lawful  money,  relieves  from,  on  circulation 024 

Duties  of  receiver 628 

Exceptions   to   limitations 615 

Extended    associations    022 

Liquidating   associations   on   consolidation 622 

Loans,    restrictions    on 579 

Reports  of   condition  to   show 017 

Restriction    on    015 

Shareholders'  agent 032 

LipNS: 

Bank  may  have,  on  collection 425 

General   and  special,   defined 496,  502 

On  stock   ( stock  certificates) 497 

Rule  between  correspondent  and  initial  bank 500 

Bank  cannot  acquire,  on  special  deposit 502 

Application    of    rule 502 

Illegal  preference  of  creditors 635 

Interest    on    bonds.  .' 005,  618 

United  States  has  paramount,  on  assets  of  national  associations..   627 

LIMITATIONS,  NATIONAL  BANK: 

Associations,  corporate  existence 581 

Bonds,  withdrawal  of 594,  600 

Capital,  converted  State  banks 58S 

Capital    stock,    increase   of 590 

Capital    stock,    reduction    of 590 

Capital   stock,   payment   of 583 

Capital  stock,  requirement 582 

Circulation,    denominations    590 

Circulation,  deposit  of  lawful  money  on  withdrawing 000 

Circulation,   increase  of OOO 

Circulation  exempt  from  tax 005 

Circulation  obtainable 592,  595 

Circulation  obtainable  by  gold  banks 598 

Circulation  to  be  taken  at  par 603 

Circulation,    tax    on 004,  007 

Circulation,   imauthorized  tax  on 606 

Comptroller   or   receiver   may   be  enjoined,   when 026 

Corporate  existence  of  converted  gold  banks 587 

Creditors  of  insolvent  banks,  notice  to 629 

Creditors  of  insolvent  banks,  illegal  preference 635 

Directors,    number    of 585 

Dividends    014.  015 

Expiration  of  corporate  existence 625 

Extension    of    corporate    existence 621 .  023 

Gold   certificates,   denominations   of 611 


Ijn'dex.  781 

Ll  IMITATIONS,  NATIONAL  BANK  —  Con  tin  ued :  page. 

Impaiiiiiout    of    capital Ul5 

Inspection  of  lists  of  shareholders 017 

Interest    rate    013 

Jurisdiction    of    courts 042 

Jurisdiction,  general,  of  national  bank  cases 042 

Lawful   money   deposited   to   retire  circulation 000 

Liability  of  national  banks 015 

Location  of  associations,  change  of 591 

Loans 614 

"National  "  in  title  of  bank 020 

Place  of  business 009 

Public  depositaries   056 

Real  estate  lioldings 613 

Reserve   gold   banks Oil 

Receiver,    appointment   of 628 

Receiver,  purchase  of   property   to  protect   trust 030 

Reports  of  condition  transmitted 617 

Reports    of   earnings    and   dividends    transmitted 018 

Reserve  requirements 009 

Reserve  with  central  reserve  agents 012 

Reserve  with  reserve  agents 009 

Shareholders'  agent,   duties   of 033 

Shareholders,  personal  liability  of 589 

Shareholders,  personal  liability  of  certain  converted  banks 589 

Shares  of  stock,  par  value 583 

Shares  of  stock,  directors  to  own 586 

State  taxation  of  money 007 

State  taxation  of  national  banks 618 

Stock,  purchased  or  acquired 614 

Suits,  conduct  of 643 

LTnited  States  bonds  deposited 584 

United  States  notes  certificates,  denominations  of 610 

United  States  gold  certificates,  issue  of 610 

United  States  Treasurer  to  redeem  circulation  presented,  when ....  602 

Visitorial  powers 620 

Voluntary  liquidation,  vote 623 

Voluntary   liquidation,   deposit  of  lawful   money 624 

Voters  at  elections 586 

(See  Statute  of  Limitation.) 

LIQUIDATION: 

Voluntary 528 

Authority  of  officers  in  charge 528 

Does  not  dissolve  corporation 528 

Liquidation  dividends 529 

Bonds  withdrawn 024 

Creditor's  bill   against  shareholders 635 

Consolidation 624 

Expiring  association  to  comply  with  provisions  for 025 

Jurisdiction  of  courts 642 

Lawful   money  to   be  deposited 624 

Notice  of,  to  be  ptiblished 624,  709,  712 

Penalty  for  issuing  cii'culation  of  association  in 640 

Redemption  of  circulation  of  as.sociations  n 601,  602 

Sale  of  bonds,   when 624 

Vote  required 623 

Agency 708 

Voluntary,    instructions    relative   to 706 

Voluntary,  for  consolidation 709 

Expiration  of  corporate  existence 711 


782  IxDEx. 

LIQUIDATIOX  AND  RECEIVERSHIP.     See   pages   623  to  643.        page. 
(See  also  Liquidation;  Receiver.) 

LOANS : 

Nature  of 323 

Real  estate,  described 323 

Bank  authorized  to  make 323 

Real  estate  prohibited  by  national  bank 613 

Restrictions  on '. 32-4,  614 

Restrictions  on  savings   banks 327 

In  excess  of  one-tenth  of  capital  when  not  a  violation  of  law 328 

Officer  who  makes,  has  authority  to  arrange  for  security  and  collect  330 

National  association's  liability  restricted 615 

Circulation  as  collateral  for,  prohibited 615 

Law  may  prohibit  taking  bank's  own  stock  as  security 330,  614 

LOCATION: 

Change  of 591,  706,  981 

Organization  certificate  to  state ' 581 

(See  Place  of  Business.) 

LOSSES : 

Negligence,  degree  of 468 

Bank  liable  for  face  value  of  paper,  when 468 

Bad  debts  and,  exceeding  profits 615 

M 
]^IANAGEMENT.      ( See  Directors  :  Officebs.) 

:NL\RRIED   WOMEN: 

[May  become  stockholders  in  bank 78 

Extent  of  liability  of ' 78,     79,     80 

MEASURE  OF  DAMAGES : 

When  paper  total  loss 468 

Negligence,  failing  to  make  collection 471 

[MEETINGS : 

Shareholders 712 

Notice  of "12 

MISTAKES: 

Tellers  not  responsible  for,  when  using  care 182 

MONEY: 

Summary  of  events  in  United  States 716 

System  of  L'nited  States T21 

Production  of  gold  and  silver  in  the  world  since  the  discovery  of 

America  752,  753 

(See    Lawful    Money;   Legal    Tender;     Circulation;     Public 
Moneys.  ) 

MORTGAGES,  NATIONAL  BANKS: 

Assignment  of,  when  illegal 635 

Official  malfeasance 642 

Purchase  of,  by  receiver 630 

Real  estate,  possession,  etc.,  of,  by  association 613 

MUTILATED  CIRCULATION : 

Redemption  of,  etc 598 

MUTUAL  SAVINGS  BANKS: 

Defined 25 

(See  Savings  Banks.) 


Index.  783 

NAME :                                                      N.                                                            PAGE. 
Change  of,  national  bank 7OG 

NATIONAL  BANKING  ASSOCIATION: 

Defined 20 

Restrictions  on,  limitations  of  certain  commercial  privileges 20 

Individual  liability  of  shareholder 77,     81,  58'J 

When  not  personally  liable 589 

Liability  enforced  by  Comptroller 81 

Liability  enforced  only  in  favor  of  creditors 82 

When  right  of  action  accrues 82 

Assumes  liability  of  State  bank  after  conversion 212 

Cannot  take  over  stock  of  State  bank 213 

Cannot  take  over  only  such  assets  as  it  may  hold 214 

Amendment  of  articles  of  association   restricted 213,  i59U 

Articles  of  association  entered  into  by 580 

Branches  may  be  retained  by  converted  State  banks 589 

Capital  required 582 

Capital  of  converted  State  banks .  .  .  .    589 

Cancellation  of  redeemed  circulation G02 

Certilicate  of  officers  and  directors — 584 

Circulation   obtainable   by 595 

Circulation  of,  tax  on G04,  000 

Circulation  of,  to  be  redeemed  in  United  States  notes 602 

Circulation  to  ho  taken  at  par 603 

Circulation  of,  for  what  receivable 597 

Circulation  unsigned  or  with  forged  signatures  to  be  reduced.  ..  .   603 

Closed  bank  circulation 002 

Change  of  title  and  location 591 

Charter  forfeiture 030 

Charter  number  to  be  printed  on  circulation  of 597 

Comptroller  and  Deputy  Comptroller  not  to  be  interested  in,  issuing 

circulation "  578 

Conversion  of  State  banks  to 588 

.  Corporate  and  incidental  powers  of 581 

Crimes,  jurisdiction,  etc 636    643 

Deposit  of  bonds  by '  5t^4 

Directors  individually  liable,  when 630 

Directors,  number  and  election  of 585 

Directors,  oath  of 5qO 

Directors,  qualification   of 580 

Election,  holding  annual 587 

Enjoining  proceedings    620 

Examination  of,  prior  to  being  authorized  to  begin  business 585 

Expiration  of  corporate  existence,  provisions  on 625 

Extended   bank    circulation 001 

Exchange  of  bonds    593 

Extension  of  corporate  existence  of 621,  022 

General  provisions  respecting  bonds 594 

Gold  bank  circulation,  provisions  for  issuing 598 

Gold  banks  may  be  organized 587 

Gold  banks,  conversion  of   587 

Incomplete  circulation  of   003 

Increase  of  capital  stock  by 590 

Liquidating  bank  circulation   601 

Liquidation,  provisions  for   623,  624 

Lost  or  stolen  notes  of.  to  be  redeemed 603 

National  Bank  Act  relative  to.  in  force  in  the  Indian  Territory.  .  .  .    644 

Oklahoma,  qualifications  of  directors  in 586 

Organization  certificate  to  specifically  state 581 


784  IiifBEx. 

XATIOXAL  BAXKIXG  ASSOCJATlOy:  —  Continued:  page. 

Payment  of  stock  prior  to  beginning  business 583 

Post-notes,  issue  of,  prohibited 003 

Preparation  of  bank  circulation 596 

Publication  of  certificate  of  authority 585 

President  of,  to  be  chosen  by  board 587 

Keceiver  may  be  appointed  for  failure  to  restore  capital 584 

Keduction  of  capital  stock 590 

Receiver  for,  wiien  may  be  appointed 028 

RedemiJtion  and  destruction  of  circulation  of 598,  599 

Eedemption   account,   disposition   of 002 

Regulation  of  business  of COS,  020 

Relation  of  bond  deposit  to  capital  of 593 

Security  for  circulation 592 

Shares  of  stock   583 

Shareholders  of,  qualifications  of,  at  elections 586 

Shareholders'  agent 03^ 

Status  of,  organized  under  act  of  February  25,  1803 591 

Subscribed  stock  not  paid  for,  forfeited  to 583 

Suspension  of  business  after  default  to  pay  circulation G27 

Taxation  of  circulation  of,  by  States,  etc GOT 

Tax   provisions    restricted 007 

Taxes   on  insolvent,   remitted G31 

Where  proceedings  to  enjoin  may  be  brought 626 

Withdrawing  circulation    600 

NEW  YORK  CITY: 

Associations   in,   reservations 609 

Bonds,   sale  of   forfeited,  in G27 

Notice  of  expiration  of  corporate  existence  in  paper  in 025 

Notice  of  voluntary  liquidation  in  paper  in 624 

NEGLIGENCE : 

Bank  liable  for  failure  to  deliver  special  deposit 247 

Bank  liable  in  not  selecting  suitable  agent 445 

NONRESIDENTS: 

Directors  of  national  banks 580 

State,  etc.,  taxation  of  stock  of 018 

NOTARY  PUBLIC: 

Bank  employing 447 

Officer  of  bank  acting  as 448 

Acknowledgment  of  organization  certificates  of  national  bank  Ije- 

fore 581 

Acknowledgment  of  reports  of  national  bank 617 

NOTES  AND  ACCEPTANCES: 

Bill  of  exchange  may  be  accepted  oi-allj'^ 278 

When  note  payable  at  bank,  duty  of  bank 401 

Bank  may  applv  a  deposit  to  pav  note,  when 402 

Set-off  —  Estoppel " 402 

Rule  of  application    403,  404 

Makers'   right  of  set-off 405 

Special  deposit,  when  accepted  to  pay  note 405 

]\Ioney  de])osited  M'ith  bank  to  pay  note  is  not  pa^Tnent 406 

Application  of  deposit  on  note 406,  407 

NOTICE : 

;May  be  waived  by  a  stockholder 68 

To  cashier,  when  notice  to  bank 172 

Board  of  directors  charged  with,  when  assembled  at  a  meeting.  . .  .  103 


Index.  785 

NOTICE  —  Continued :  page. 

W  lieii  the  law  imputes  knowledge 104 

Notice  to  a  single  director 104 

\\here  a   person,   agent,  or  officer,   acting  within  their  authority, 

held  to  be lOG 

Facts  known  to  president  of  bank  held  to  be 106 

Officer  or  agent,  acting  on  his  own  behalf,  held  not  to  be 108 

.    Rule  stated 109 

Director  must  have  actual  knowledge 109 

Withdrawal  of  deposit    481 

Loss  of  pass-book,  notice  must  be  given 488 

Liquidation,  national  bank   709,  712 

Meetings   (national  banl<) ,  general 712 

O. 

OATH: 

Certificate  of  officers  and  directors 583,  584,  580,  712 

Examiners  may  take  statements  under 5(58,  619 

Execution   of   organization   certificate 581,  588 

Official,  by  Comptroller 578 

Official,  by  Deputy    Comptroller    578 

Pajnnent  of  installments    583 

Reports  of  condition,  etc 617,  618 

Semi-annual  return  of  circulation 004,  606,  618 

Shareholders,   list  of 617 

(See  DiKECTORS  axd  Officers.) 

OBLIGATIOXS  OF  THE  L*NITED  STATES: 

Defined 638 

Penalty  for  dealing  in  counterfeit    640 

Penalty  for  illegal  possession  or  use  of  material  for 638 

Penalty  for  passing  counterfeit    639 

Penalty  for  pledging 636 

Penalty  for  taking  or  having  unauthorized  impressions  of  tools.  . .  639 

OFFICERS : 

General  discussion  of  duties 83 

Election  of,  in  national  bank 581,  681,  682 

Bonds  assign  to  be  signed  by  cashier  or  other 593 

Certificate  of  director  and 584,  682 

Certificate  of,   form  of 682 

Certificate  of  payment  of  increase  of  stock 590 

Certificate  of  pavTiient  of  stock  by  president  or  cashier 583 

Circulation   properly  signed  issuable 597 

Disqualified  to  examine  bank  in  which  interested 619 

False  certification  of  checks 641 

Cashier  has  inherent  power  to  certify  check 140 

Cannot  certify  liis  own  check 146 

Cashier  has  inherent  power  to  draw  drafts  or  checks 147 

Power  to  receive  off'ers  for  purchase  of  bank  security 150 

Cashier  has  inherent  power  to  deal  in  bills  of  exchange 151 

Cashier  has  charge  of  personal  property 152 

Has  power  to  indorse  negotiable  paper 153 

Has  no  power  to  indorse  for  accommodation 154 

Cashier's  powers  and  duty  when  "  run  on  bank  " 156 

Cashier  has  no  inherent  power  to  borrow  money  for  bank 158 

His  inherent  power  to  collect  debts 167 

Forged  sigiiatures  of.  to  circulation  not  to  invalidate 603 

Fraudulent,  to  be  marked  by 603 

Official  malfeasance,  penalty  for 642 

Penaltv  for  false  certification  of  checks 641 

50 


786  I^'DEX. 

OFFICERS  —  Continned :  page. 

Penalty  for  improper  countersign,  etc.,  circulation 03G 

Penalty  for  issuing  circulation  of  expired  association 640 

Penalty  for  official  malfeasance    642 

Penalty  for  pledging,  etc.,  circulation   636 

Penalty  for  unauthorized  receipt  of  public  money 659 

Preference  of  creditors 635 

President  of  board,  national  bank,  a  director 587 

President  or  cashier,  certification  of  extension 621 

President  or  cashier,  certification  of  expiration    of   existence 625 

President  or  cashier,  certification  of  liquidation 624 

President  or  cashier,  waiving  notice  of  protest,  national  bank.  .  .  .  625 

Redemption  of  unsigned  circulation 603 

Proxy,  cannot  act  as 681 

Bonds  of,  reneval  of.  in  case  of  extension  of  charter 704 

Taking  deposit  when  bank  insolvent 522,  523 

OFFICERS  BORROWING  MONEY: 

Cannot  loan  bank  funds  to  themselves 383 

Restrictions  and  limitations  against 383 

Restrictions  against  officers  of  savings  banks 384 

Loans  may  be  made  to  officers  by  directors,  when 386 

ORGANIZATION : 

Preliminarj'  steps,  organization  of  national  banks 30 

Instructions  relative  to    673 

Forms  for  673,  674 

Articles  of  association    580 

Who  can  form 30 

Capital    stock    5S1 

Capital  stock  requirements 582 

Forms    for 673,  674 

Who  may  become  incorporators 31 

Married   women   parties  to 670 

Parties  to.  must  be  natural  persons 678 

Who  are   natural   persons 30 

Certificate  of  authority  to  begin  business 585 

Form  of   678 

Execution  of,  in  duplicate 678 

Acknowledgment  of   67!) 

Certificate  of  officers  and  directors 584 

Term  of  existence 3.'3 

National  associations  to  have  succession  for  twenty  years 670 

Purpose  of  corporation 33 

Requirements  of  law  essential 34 

When  complete   35 

Certificate,  proof  of  corporate  existence 49,  50,  643 

Sealed  certificate  of  Comptroller  evidence 643 

Specifications    in    581 

When  life  of  corporation  begins 51 

Statutory'  laws  regulate  organization  of  State  banks 32 

Corporate  powers  of  national  bank 581 

Deposit  of  bonds  required 584 

Directors,  election  of  national  bank 587 

Number 585 

Oath  of  directors   586 

Qualification   of  directors    586 

Directors  choose  president   587 

Vacancy  of  directors.,  how  filled .    587 

Enforcing  ])ayment  of  stock    5S3 

Examination  of  national,  preliminary  to  begi.ining  business 584 


IxDEx.  787 

ORGANIZATION  —  Con  finued :  page. 

Failure  to  hold  election 587 

Incidental   powers    581 

Location  and  title,  change  of 591 

Location 581 

Payment   of  stock    583 

President,  qualification  of   587 

Publication  of  authority  to  begin  business 32,  585 

OVERDRAFTS : 

Defined 308 

When  unlawful 308 

L^sage  or  practice  no  authority  for 308 

If  unlawful   directors   cannot   legalize 310 

Overdrawing  may  be  legalized,  how 311,  312 

Officer  allowing  overdraft,  criminal  act,  when 312 

Drawer  liable  to  bank  for  overdraft 312,  313 

PAPER  MONEY:  ^' 

First  issued 733 

History  of 733 

United  States  notes    734 

Gold  certificates 735 

Silver  certificates  73G 

Treasury  notes   737 

Fractional  currency   738 

PENALTY:     (Acts  whicli  constitute  under  National   Banking  Laws.) 

Appointment  of  receiver  for  violation  of  act G2S 

Bond   of  Comptroller 578 

Bond  of  Deputy  Comptroller 578 

Counterfeiting   circulation   G37 

Dealing  in  counterfeit  circulation   640 

False  certification  of  checks 041 

Failure  to  p;iy  installment  on  stock 583 

Failure  to  redeem  circulation 626 

Forfeiture   of   charter 630 

Illegal  possession  for  use  of  material  for  circulation 638 

Imitating  bank  circulation  for  advertising  purposes 637 

Improper  countersigning  or  delivering  circulation 636 

Interest  unlawful 614 

Issuing  circulation  of  expired  associations 640 

Jurisdiction  of  United  States  courts    642 

Mutilating  circvilation 637 

Misapplication  of  money  order  funds 657 

"  National,'"  imlawful  use  of  the  word 620 

Official  malfeasance 642 

Passing  counterfeit  circulation    639 

Pledging  United  States  notes  or  bank  circulation 636 

Reports  to  Comptroller,  failure  to  make 618 

Reserve,   maintenance  of    GOO 

Semi-annual  return  of  circulation 604,  605 

Taking  or  having  unauthorized  impressions  or  tools 639,  640 

Unauthorized   deposit  of  public  money 658 

L'nauthorized  receipt  or  use  of  public  money 659 

PLATES: 

Control   of ; 597 

Cost   of  engraving    599,  684 

Custody   of 578 


788  Index. 

PLATES  —  Coniinued :  page. 

Engraving   of    596 

Examination   annually    597 

Expense  of  examination  and  destruction  of 597 

Extended  banks GOl,  701 

Liquidated  bank,  to  be  destroj-ed 597 

Penalty  for  counterfeiting  63S 

PLACE  OF  BUSINESS: 

Must  have  principal  place  of   34 

Legal  existence,  where 222 

Residence  in  one  State  does  not  forbid  a  contract  to  be  made  in 
another 222,  223 

PLEDGE : 

Stock,  pledged  to  secure  a  debt  cannot  be  voted,  when 68 

Pledgee,  statute  protecting    77 

Pledging  or  hypothecating  circulation  prohibited 615 

POPULATION : 

Relation  of  caijital  stock  to^  of  national  bank 582 

POST-NOTES : 

National  bank  cannot  issue   603 

PREPARATION  OF  CIRCULATION: 

Provisions  for  national  baiilc   596 

PRESIDENT: 

General  qualifications 117 

Qualifications  necessary  to  hold  office 120,  587 

Election  or  appointment  of,  by  directors 58 1 

Powers  of 121 

Powers  limited,  but  is  regarded  as  having  charge  of  bank's  affairs.   121 

Has  inherent  power  to  employ  covmsel 122 

Is  agent  of  board  of  directors 122 

Has  only  co-ordinate  powers  with  dii'ectors 122,   123 

His  acts  held  binding  with  knowledge  of  directors 124 

May  bind  bank  by  usage,  when 123,   124 

President's  powers  derived  from  statute 127 

Limited  and  prohibited  power  of 127,   128 

Cannot  certify  his  own  check 127 

Holding  out  to  public,  powers  believed  in,  binds  the  bank 128 

Representations  and  admissions^,  effect  of 129 

Liable  to  bank  for  acts  which  amount  to  breach  of  trust 130 

Allowing  overdraft  which  causes  loss  personally  liable 130 

Usage  does  not  always  excuse 131 

May  borrow  money  from  bank  unless  prohibited 132 

Compensation  of    ....    134 

Certificate  of  officers  and  directors    (national  bank) 584 

Countersigning  or  delivering  circulation   improperly 636 

False  certification  of  checks  and  penalty  for 641 

Official  malfeasance,  penalty  for 642 

Proxy,  not  to  act  as 586 

Public  money,  unauthorized  receipt  of,  by 659 

Signature  of,  forged,  not  to  invalidate  circulation .  .    .  .    603 

Signature  of,  on  circulation 596,  597 

Violations  of  act  by,  penalty  for 628,  630 

PROTEST  OF  CIRCULATION: 

Bonds   forfeited,   when 620 

Bonds,  sale  of,  when 627,  628 

Failure  to  redeem  circulation 625,  626 


Inixex.  789 

PRIVATE  BANKING:  page. 

May  be  prohibited   1,  0 

Private   banker   defined    23 

PROMISSOF.Y  NOTES : 

Certificate  of  deposit  held  to  be 314 

PROOF: 

Of  corporate  existence   40 

Entry  in  pass-book 240 

Notice  of  loss  of  pass-book  required 4S8 

PROXY: 

Shareholders   (national  bank)   may  vote  by 6S1 

Form  of ' " 682 

Director,    officer,    clerk,    teller    and   bookkeeper   not    competent    to 

act  as GS 1 

PUBLICATION   (relating  to  national  banks)  : 

Annual  election,  notice  of  holding  special 587 

Certificate  of  authority  to  begin  business 585,  686 

Change  of  title  or  location,  notice  of 591 

Creditors  of  insolvent  associations,  notice  to 629 

Expiration  of  corporate  existence,  notice  of 625 

Non-payment  of  circulation,  notice  to  present 625,  627 

Reports   of   condition  of  banks  other,   in   national   in    District   of 

Columbia 618 

Reports  of  condition  of  national  banks 617 

Sale  of  bonds,  notice  of 627 

Sale  of  delinquent  stock,  notice  of 583,  616 

Shareholder's  agent,  notice  of  election  of c 632 

Voluntary  liquidation^  notice  of   624,  708,  712 

PUBLIC  DEBT: 

Of  government  from   1865  to  1894 .  . . .  ^ 75 1 

Q. 

QUALIFICATION: 

Comptroller  and  Deputy  Comptroller  of  Currency 578 

Directors  of  national  bank    586,  681 

In  Oklahoma 586 

Examiners  of  national  association 619 

Receivers  of  national  bank  association 628 

Shareholder's  agent 632 

R. 
REAL  ESTATE: 

Investment  and  holding  restricted    613 

Subject  to  State,  etc.,  taxation 618 

(See  Dealing  in.) 

RECEIVER  OF  NATIONAL  BANIv: 

Appointment   and   duties   of 628 

Appointment  of,  for  failure  to  dispose  of  own  stock 628 

Appointment  of,  for  failure  to  restore  diminished  capital...    584,  628 

Appointment  of,  for  false  certification  of  checks 628 

Appointment  of,  for  non-payTiient  of  circulation 628 

Appointment  of,  for  impairment  of  capital    628 

Appointment  of,  for  insolvency 628 

Appointment  of.  for  non-maintenance  of  reserve    628 

Courts  majr  enjoin    626 


TOO  IXDEX. 

IIECEIVER  OF  NATIONAL  BAy:K  — Continued :  page. 

Expenses  of,  how  paid   630 

General  jurisdiction  of  national  bank  cases 642 

Jurisdiction  of  circuit   courts 642 

Purchase  of  property  by,  to  protect  trust 630 

REDEMPTION: 

Cancellation  of  circulation  sent  for 602 

Deposit  of  lawful  money  for,  of  association  in  liquidation 624 

Disposition  of  account   602 

Enjoining  Comptroller   626 

Extended  bank  circulation    60 1 

First  lien  on  assets   627 

Five  per  cent,  fund  for,  to  be  maintained 590 

Five  per  cent,  fund  for,  part  of  lawful  reserve 610 

Forfeiture   of  bonds 626 

Forged  signatures  not  to  prevent 603 

General   provisions   respecting    599 

Incomplete   circulation   603 

Liquidating   bank   circulation    001,  602 

Notice  to  present  circulation  for 627 

Proceeds  from  sale  of  bonds  for^  of  circulation 624 

Profit  on  circulation  not  presented  for 601 

Protest  of  circulation  for  failure  to  redeem 625 

Provisions  for,  of  circulation   598 

Provisions  for,  of  United  States  notes  certificates 610 

Records  of 602 

Sale  of  bonds 027,  628 

State  bank  circulation  converted,   provisions   for 607 

United  States  notes  of  circulation  in 602 

Unsigned  circulation  to  be  redeemed 603 

"^Vithdrawn    circulation    600 

^^'orn  or  mutilated  circulation   598 

Gold  coins,  standard  silver  dollars,  not  redeemable 738 

Treasuiy  notes  are   738 

National  bank  notes  are 738 

Gold  certificates  are   738 

Silver  certificates  are 739 

Gold  obligations  of  the  L'nited  States  are 739 

REDEMPTION  ACCOUNT : 

Disposition    of    602 

Re-extension  of  corporate  existence 623 

Law  and  instructions  relative  to   703 

REDUCTION  OF  CAPITAL: 

Resolutions  for,  by  national  bank 690 

Valid,  when,  by  national  bank 690 

Disposition  of 691 

Vote  of  shareholders  owning  two-thirds  of  capital  stock  in  national 

bank    required    229 

Two-thirds  of  a  quorum  voting  not  sufficient 229 

Released  capital  becomes  property  of  stockholders 229 

No  part  of  reduction  can  be  carried  to  surplus  without  unanimous 

consent  of   shareholders    230 

State  bank  reducing  capital  must  comply  strictly  with  the  law.  ...  231 
In   California,   cannot  diminish   capital   less  than   indebtedness   of 

the  corporation    231 

Cannot  be  reduced  if  capital  impaired 231 

Certificate  of  reduction  conclusive,  when 231 


Index.  791 

REGULATION  OF  BANKING  (BUSINESS)  :  page. 

State  banking  controlled  by  the  State 1,  8 

Question  discussed 1,  8 

Right  of  banking    1,  8 

National  banks  controlled  and  authorized  by  Congress 9 

.     Foreign  bank,  how  governed 9 

(Regulation  relating  to  National  Banks.) 

Assessment,  enforcement  of    616 

Circulation,  improper  use  of 615 

Dividends 61-i 

Dividends  prohibited,  when   615 

Examiners,  appointment  of   619 

Examiners,  compensation  of   619 

Impairment  of  capital 615 

Interest,  limited    613 

Interest,  unlawful,  penalty  for 614 

Laws  governing  certain  associations 608 

Liability  of  association  restricted 615 

Loans,  restrictions  on 614 

Net  profits 619 

Place  of  business 609 

Real  estate,  purchasing,  etc 613 

Reports  of  condition   617 

Reports,  failure   to  make    618 

Reports,  verification    of    617 

Reports  of  dividends  and  earnings 618 

Reports,  verification  of 618 

Reserve  cities €09,  612 

Reserve  cities,  balances   with   agents 609 

Reserve  cities,  central    612 

Reserve  cities,  requirements 609 

Reserve  cities,  requirements,  goM  banks 611 

Shareholders,  list  of   617 

State  taxation  of  associations 618 

Stock,   holding,   etc 614 

Surplus   and   dividends 614 

Uncurrent  notes,  use  of,  prohibited 016 

Unearned  dividends  prohibited ■ 615 

Visitorial   powers,   limitation  of 620 

RELEASE : 

President  has  no  power  to   release  judgment   of   record   in   favor 

of  bank 129 

REMOVING  PLACE  OF  BUSINESS: 

National  may  remove  with  consent  of  Comptroller,  when 219 

Law  may  stop  privilege,  when 219 

State  bank  may,  when  law  so  provides 219,  220,  221 

REPORTS   ( Required  of  National  Bank,  etc. )  : 

Amendments  proposed  in  Comptroller's 579 

Annual,  to  be  made  to  Congress 579 

Banks  other  than  national 618 

Circulation,  semi-annual  return  of 604 

Closed  banks   579 

Condition  of  banks  other  than  national 579 

Condition  of  national  banks  in 579 

Distribution  of 580 

Dividends  and  earnings ^ 618 

List  of  shareholders 617 

Payment  of  capital  stock 583 


792  Index. 

EEPORTS  —  Continued :  page. 

Printed,  when STO 

Printed,  number  of  copies •'^>80 

Statement  of  condition  of  national  bank 017 

Not  less  than  five  required  during  each  j'ear .572 

Must   be  verified  by  president   or   cashier   and   attested   by   three 

directors 572,  57.3 

Comptroller  has  power  to  call  for  special 573 

No  uniform  law  of  States  requiring 574 

Suggestion  of  law  as  to  verification  and  attestation bl-i 

Reports  should  be  more  frequently  called  for 574 

RESERVE   (Regulation  relating  to  National  Bank)  : 

Clearing-house  certificates    GIO 

Five  per  cent,  fund G02,  610 

Gold  and  silver  held  bv  gold  banks 611 

Gold  certificates    ....". 611 

Lawful   money    609 

Maintenance  of    600 

Penalty  for  failure  to  maintain 609 

Proportion  of,  with  agents 600,  612 

Requirements 609 

Requirements   for  gold  banks til  1 

Reserve  agents,  balance  with 600,  612 

Silver   certificates 609,  (ill 

United  States  notes  certificates 610 

RESERVE  AGENTS: 

Balance  with 609 

Central  city  612 

Central    city    additional 612 

Cities,  additional,  in  Avhich  may  be  located 6J2 

Cities  in  which  located 609 

RESERVE  CITIES: 

Additional,  provisions   for 612 

Central,   deposits   in 612 

Central,    provisions   for    612 

Named ■ 609 

Requirements,  not  applicable  to  gold  banks  in  San  Francisco 612 

Requirements  of  associations  in    609 

RESIDENCE : 

List  of  shareholders  and  reported  annually 617 

List  of  shareholders  in  organization  certificate 581 

National  banks 647 

Qualification  of  directors  of  associations 586 

(See  State  Baxks.) 

REPRESENTATIONS.      (See  Officers,  Agents,  Etc.) 

REQUIREMENTS  OF  LAW  ESSENTIAL: 

Creating  a  corporation  requirements  in  general  law  essential 34 

A  substantial  compliance  a  prerequisite 35 

RESTORATION  OF  CAPITAL  STOCK,  NATIONAL  BANK: 

Provision  for 584,  615 

REVOCATION  OF  PAYMENT  OF  CHECKS: 

Payment  may  be  stopped    286 

Oral  notice  may  be  suflicient   288 

Written  notice  binding,  best  notice 289 


Index.  793 

EIGHT  OF  BANKING:  page. 

Controlled  by  constitution  and  legislative  measures 1  to       7 

"  RUN  ON  BANK  " : 

Cashier's  powers  and  duties   156 

May  personally  take  charge  of  all  the  bank's  affairs 157 

May  take  time  to  examine  depositor's  account,  before  payment  of 

check 157 

Has  no  right  to  delay  payment 157 

Under  such  emergencies  may  make  discounts  and  pledge  securities 

of  the  bank    I57 

May  borrow  money  to  meet  immediate  demands  if  authorized.  .  .  .    158 

May  take  time  to  balance  depositor's  account,  when 257 

Extra  assistance  not  required   to  be   called   to   facilitate  business 

during 257 

Bank  must  pay  checks  in  order  in  which  presented 257 

To  prevent  confusion,  teller  is  entitled  time  to  examine  depositor's 

account „ . .   258 

S. 
SAFE  DEPOSIT: 

Bank  has  incidental  power  to  conduct 391 

Is  a  discretionary  power  invested  in  directors 391 

Bank  holding  property  as  such  becomes  a  bailee 391 

Holding  property  without  compensation,  bank  liable  only  for  gross 

negligence ". 391 

Gross   negligence   defined    391.  392 

Burden  upon  plaintiff  alleging  negligence  to  prove  it 393 

This  burden  is  never  shifted  from  him ' 393 

National  Banking  Act  has  no  special  provisions  for  conducting.  .  .    393 
Comptrollers  holds  that  the  privilege  is  discretionary  with  direct- 
ors     393 

Oflfieers   accepting   property   for   deposit   without   authoritv,   wlien 
liable '. .' ]  ..   393,  394 

SALARY.     (See  Compensation.) 

SAVINGS  DEPARTMENTS: 

National  Banking  Act  does  not  authorize 715 

Implied  authority  recognized    716 

National  bank  taking  deposits  upon  special  contracts,  matter  for 

judicial  determination 716 

Comptroller  holds  that  the   privilege  is  one  for  consideration  by 

the  board  of  directors    716 

SAVINGS  BANKS: 

Mutual ,   defined    25 

Capitalized    savings    bank    defined    25 

Mutual  and  capitalized  distinguished    28 

General  discussion  of,  and  nature 473 

State  regulation  of  business   470 

May  deal  in  stocks  and  bonds,  when 359 

Relationship  of  depositor  in  mutual    477 

Depositor  has  no  liability  in  capitalized  savings  bank 479 

Na,ture  of  deposits  in  capitalized  savings  bank 479 

Trust  deposits,  what  are   479 

Rules  regulating  and  governing  depositors  in 480 

Gift  —  savings  bank  deposit  in  trust 480 

Amount  of  deposit  received  may  be  governed  by  statute 480 

When  special  deposit  preferred 480 

Notice  of  withdrawal  of  deposit  may  be  waived 481 


T9i  IXDEX. 

SAVINGS  BANKS  — Con ^iH wee?;  page. 

Bv-la\vs  of  savings  banks    481 

Discussion  of 481  to  490 

General  rule  defining  by-law.  held  binding  betv>cen  parties.  .  .    489,  490 

Pass-books,  original  books  of  entry 489,  490 

Entries  in,  if  questioned,  are  facts  for  the  jury  to  determine 490 

Pass-book  may  or  may  not  be  assigned 490 

When  not  negotiable,  possession  does  not  constitute  proof  or  rights 

to  money 490 

Charter  of  bank  determines  its  powers 491 

May  borrow  money,  wlien   491 

If  law  allows,  may  make  discounts 491 

Investments 491 

Insolvency  of  savings  banks   492 

Pieceiver  may  be  appointed 492 

Application  for,  may  be  made  by  stockholders 492 

Law  of  State  governs  .  .  . '. 492 

Plights  of  depositors  when  insolvent   492 

Depositors"  right  of  set-oflF   492,  493.  494 

Special  deposit  may  be  set  off  against  debt  of  depositor 494,  495 

Insolvent  savings  bank  directors  may  levy  an  assessment 495 

SECRETARY  OF  TREASURY: 

Agent,  special,  to  be  appointed  for  associations  failing  to  redeem 

circulation    C26 

Appointment  of  Comptroller  on  recommendation  of 577 

Appointment  and  classification  of  clerks  by 578 

Appointment  of  Deputy  Comptroller  by 578 

Assignment  of  rooms,  etc..  for  the  Comptroller  by 578 

Authorized  to  exchange  registered  for  coupon  bonds 593 

Circulation,  worn  or  mutilated,  destruction  of,  by 598 

Currency,   expansion  or  contraction  of,  by  issue  of  currency  cer- 
tificates,  prohibited   by CIO 

Duties  of  Comptroller  under  general  direction  of 577 

Exchange  of  bonds,  terms  of.  prescribed  by 594 

Organization  of  national   banks   with   capital   less  than   $100,000, 

to  be  approved  by   582 

Plates  and  dies,  examination  of,  by 597 

Recommendation  of  appointment  of  Comptroller  by 577 

Receivers,  appointment  of,  by  Comptroller,  concurrence  in  by,  in 

certain  eases   609 

Reserve  cities,  designation  of.  by  Comptroller,  to  be  approved  by.  .    612 

Seal  of  office  of  Comptroller,  to  be  approved  by 578 

Cnited  States  certificates  may  be  issued  by 610 

SEIGNIORAGE : 

]\Ieaiiing  of 740 

SET-OFF : 

Right  of  depositor  in  savings  banks 492,  493.  494 

Special  deposit  in  savings  bank 493 

Rule  —  right  of  depositor 525,  527 

Equitable  rights  of  depositor    526 

When  may  be  denied  by  clearing  house  committee 556 

SHAREHOLDERS  (See  Stockholder's  Rights  axd  Liabilities)  : 

Who  may  be  a  subscriber   59 

A  married  woman  may  become 679 

Enforcement  of  subscription   61 

What  constitutes  a  subscriber    64,  65,     66 

Purchase  and  transfer  of  stock 66 


Index.  795 

SHAREHOLDERS  —  Continued :  page. 

How  may  be  acquired    0(5 

Rights   of   GG.     67 

Entitled  to  notice  of  meetings 67 

Xotice  may  be  waived  by 68 

The  right  to  vote    68 

Corporation  cannot  vote  its  own  stock 68 

Pledgee  cannot  vote  stock   68 

Right  to  vote  by  proxy : 69,  58G,  681 

Right  of  stockholder  to  inspect  record  of  corporation 69 

Liability  of  stockholder  to  creditors  of  corporation 70 

Liability  cannot  be  enlarged  by  a  by-law 70 

When  stockholder  liable  to  corporation  liable  also  to  creditors.  ...      70 

General   rule 70 

Liability  beyond   subscription    70 

When  liability  does  not  exist  at  time  of  subscribing,  statute  can- 
not afterward  impose  a  liability   73 

Fixing  date  of  liability    73 

Extent  of  stockholder's  liability    73,     78 

Individual   liability  of  stockholders  in   national  bank   not  depend- 
ent upon  contract  of  subscription    71,  5S9 

Bank  charter  defining  individual   liability 74 

Liability  of  pledgee  or  trustee 75 

Statute  protecting  pledgee    '.....      77 

Individual  liability  of  shareholders  of  national  banks 77 

Extent  of  liability    78 

Liable  for  interest 78 

Representatives  of  deceased  shareholder   liable 78 

Married  woman,  shareholder,  liable 78 

Executors,   administrators,  guardians,   or   trustees   not   personally 

liable \      80 

Individual  liability  of  shareholder  in  national  bank,  how  enforced.      81 

Creditor  may  sue  stockholder  of  State  bank  association 82 

When  right  of  action  accrues  against  stockholder  in  national  bank.      82 

Shareholder  disqualified  from  voting,  when 681 

Extension  of  corporate  existence  of  national  banks  by 699 

Re-extension  of  corporate  exi.stence  of  national  banks  by 703 

Dissenting  to  extension  of  re-extension  of  national  bank  corpora- 
tion may  give  notice 703 

Share  of  dissenting  shareholders  to  be  paid  for 703 

Rights  of  shareholders  to  increased  capital  of  national  bank 703 

Meetings  of,  national  banks 712 

Dissenting  to  extension  of  national  bank  may  withdraw 622 

Conversion  of  State  banks,  requirements 588 

Election  by,  annually,  national  bank 585,  587 

Enforcement  of  assessment,  impaired  capital,  national  bank 616 

Enforcing  payment  by,  of  installments 583 

Qualifications  of  directors,   national   bank 58G 

nights  and  liabilities  of,  on  transfer  of  shares,  national  bank ....    583 

Title  and  location  of  national  bank,  change  of,  by 591 

Vote  of,  necessary  to  place  national  bank  in  liquidation 023 

Voting  of,  not  allowed  national  bank,  when 586 

SHARES,  NATIONAL  BANKS: 

Association  not  to  own  or  hold  its  own  except 614 

Consent  of  owners  of  two-thirds,  necessary  to  extension 621 

Converted  State  bank  to  be  the  same  prior  to  conversion 588 

Disposition  of,  taken  for  debt 614 

Fifty  per  cent,  of  aggregate  value  of,  to  be  paid  in  prior  to  be- 
ginning business  583 


796  I::^DEX. 

SHARES,  NATIONAL  BASKS  — Continued:  page. 

Holding  of,  in  otlier  banks  by  converted  banks  authorized 588 

Installments,  payment  and  certitication  of 583 

List  of  owners  of,  to  be  kept  and  copy  sent  to  Comptroller 017 

Loan  on  security  of,  prohibited 614 

Oath  of  director  relative  to 586 

Owners  of  two-thirds  may  place  association  in  liquidation 023 

Organization  certificate  to  state  capital  and  number  of 581 

Personal  property    583 

Preference  in  allotment  of,  in  succeeding  association 622 

Qualifications    of    directors 580 

Receiver  may  be  appointed  for  failure  to  dispose  of,  taken 028 

Sale  or  forfeiture  of,  for  failure  to  pay  installments  due 583 

Sale  of,  when  necessary 581,  583,  014,  622 

State  taxation  of 618 

Transfer  of    583 

Value  of,  of  shareholders  dissenting  to  extension,  how  ascertained.  622 

Value,  par,  of  each 581,  588 

Voting 586 

SIGNATURE  ON  CIRCULATION: 

President  or  vice-president  and   cashier 596 

Treasurer  and  register  of  United  States 596 

SILVER  BULLION: 

Construed  to  be  lawful  money,  when Oil,  019 

Reserve  of  gold  banks  to  be  gold  and 611 

Act  relating  to 739 

Meaning  of  16  to  1 740 

SILVER  CERTIFICATES: 

Clearing-house  balances  payable  in 611 

Reserve  of  national  banks  may  be 611 

STALE  CHECKS.     (See  Checks.) 

STANDARD  OF  VALUE : 

How   adopted    729 

STATE  AUTHORITY  OVER  BANKING  BUSINESS: 

State   may   prescribe    restrictions 8 

May  regulate  business    8 

May  regulate  business  of  foreign  bank 9 

May  establish  the  right  to  examine  banks 11 

STATE  BANKS: 

Defined 18,  27 

Organization  of 32 

Organization,   when  complete 35 

Directors  of 9o 

Reorganization  of   588,  094 

Purchase  of  assets  from 094 

Capital  of    589 

STATE,  TERRITORY,  OR  DISTRICT: 

Change  of  title  or  location  of  associations 591 

Compensation  of  national  bank  examiners 019 

Conversion  of  bank  organized  under  authority  of  laws  of -oSS 

E\'idence 643 

Interest,  national  banks  not  to  take  in  excess  of 613 

Proceedings  to  enjoin  Comptroller  or  receiver,  etc 626 

Taxation  of  circulation  of  State,  etc.,  associations 000,  607 

Taxation  of  money  by 007 

Taxation  of  national  banks  bv 013 


I2ndex.  797 

STATUTE  OF  LIMITATIOXS:         "  page. 

Runs  against  check,    v.hen    503 

Runs  against  certificate  of  deposit,  when 503 

Runs  against  stockliolder's    liability,    when 505 

State's  statute,  when  does  not  apply 506 

Fraudulent  act,  when  runs 507 

STOCKS : 

How  acquired 60 

Absolute  assignment  may  be  only  security 76 

Bank  cannot  vote  its  own  stock 08 

SUBSCRIPTION : 

Stock  subscription  list,  suggestion  relative  to 075 

(See  Shabeholdeb;  Stockholdeb. ) 

SUCCESSION: 

Expired   national    associations 622 

Period  of  national  banks 581,  679 

SUITS   RELATING  TO   NATIONAL   BANKS: 

Against  United  States  officers  or  agents 643 

Certified  copy  of  organization  certificate,  evidence  in 643 

Circuit  courts,  jurisdiction  of 642 

Corporate  powers   of  associations 581 

Creditor's  bill  against  shareholders 635 

Crimes,  jurisdiction,  etc 636,  644 

District   courts,   jurisdiction  of 642 

Enjoining  Comptroller  or  receiver 626 

Forfeiture   of   cliarter 630 

Illegal  preference  of  creditors 635 

Indian  Territory,   in    • 644 

Jurisdiction   of   circuit   courts 642 

Jurisdiction,  general,  of  national  bank  cases 642 

Proceedings  to  enjoin  Comptroller,  to  be  brought  where 626 

Sealed  certificate  of  Comptroller,  competent  evidence 643 

Shareholders'  agent    633 

Shareholders'  liability,  to  enforce 628 

Solicitor  of  the  treasury  to  dii'ect  and  supervise  certain 643 

SUTIPLUS : 

Dividend  cannot  be  declared  from,  when 572 

Converted  State  bank  with  capital  of  $5,000,000 589 

Creation  of,  by  national  bank 614 

Receiver  may  be  appointed  for  deficiency  in 589 

Accumulation  of,  use  of,  etc 614,  688 

T. 
TAX: 

Bills  of  converted  State  bank 607 

Circulation,  enforcing  payment  of    : 605 

Circulation,  exempt  from 605 

Circulation,  failure  to  make  returns 605 

Circulation,  rate  and  time  of  pajTiient (i09 

Circulation,  refunding  excess    605 

Circulation,  semi-annual  return  of   604 

Money  of  all  kinds  subject  to,  by  States,  etc 007 

Notes  unauthorized    006 

Notes  unauthorized,  failure  to   make  return 607 

Notes  unauthorized,  semi-annual  return 606 

Provisions   restricted    607 

Remission  of,  on  insolvent  national  banks 631 

State  taxation  of  national  banks 618 


798  Index, 

TELLER  ( See  also  Officers  )  :  page. 

Functions  of  paying 179 

Is  an  agent   179 

His  acts  when  not  delegated  may  be  ratified 180 

May   certify   checks ' 145,   181,   183,  185 

Not  responsible  when  vising  care 182 

Ratification  of  his  acts  are  release  of  his  liability 184 

Notice  not  to  pay  check,  efTect  of 185 

Prior  course  of  dealing  may  imply  power 185 

Teller's  duties ^ " 185 

Where  duties  are  defined,  has  no  other  power .    186 

Held:   paying  teller  cannot  receive  deposit ISO,  187 

Rule 188 

His  unlawful  acts  do  not  bind  bank 189 

Is  not  held  liable  unless  act  is  willful 189 

Receiving  teller  has  peculin-  responsibilities 190 

Should  be  skilled  as  an  expert   190 

Deposits  received  by   • 191 

Tests  used  in  detecting  counterfeits 192  to  198 

Limitation  of  powers    199 

Acts  of,  affecting  bank   199 

Rule  as  between  bank  and  depositor 199 

Duties  are  usually  defined    200 

When  duties  not  defined,  is  a  subordinate  of  cashier 201 

Note  teller,   duties  defined 202 

TREASURER,  UNITED  STATES: 

Circulation,  withdrawal  of.  provisions  for 600 

Deposit  of  United  States  bonds  with,  to  secure  circulation.  .  .  .    584,  592 

Disposition  of  redemption  account   002 

Enforcing  tax  on  circulation    605 

Examination  of  bonds  and  records,  provisions  for 594 

Interest  on  bonds  to  be  retained  by,  when 605.  615,  618 

Public  moneys   to  be   deposited  with   assistant  treasurer,   govern- 
ment depositaries,  or    657 

Proceedings   on   default   in   making  return   on   circulation   subject 

to  duty 605 

Redemption  fund  to  be  kept  with 599 

Redemption  of  circulation  by  599 

Redemption  of  circulation  in  United  States  notes  by 602 

Semi-annual  return  to.  of  circulation  subject  to  duty 604 

Signature  of,  on  circulation 596 

Tax,  excess,  refunding 605 

Tax  on  circulation  to  be  paid  to 604 

Transfer  of  bonds  in  trust  for  association  to  be  made  to 594 

Associations  to  reimburse,  for  cost  of  redemption  of  circulation  and 

plates 599 

Currency  bureau  in 577 

Notice  to  present  circulation  at 627 

Penalty  for  failure  of  association  to  report  to  be  paid  into.  .    604,  618 

,  Redemption    account,   disposition   of 602 

Redemption   fund,  five  per  cent.,  in 509 

Redemption  of  circulation  at 600.  602 

Reserve  in 754 

TRUST: 

Purchase  of  property  by  receiver  to  protect 630 

TRUSTEE : 

Shareholders'  liability,  exempt  from 75,  80,  81,  589 


Ia'dex.  799 

TRUST  COMPANIES:  page. 

Defined 23 

Distinguished  from  a  bank 563 

May  have  banking  powers 563 

Rule  determining  powers    563 

lu  District  of  Columbia 6-44 

ULTRA  VIRES,  ACTS :  ^'• 

Defined 13 

When  not  to  be  applied 15 

Defense  of 15 

National  bank  cannot  buy  stock  of  another  corporation 357 

Guaranty  of  bank  may  be 400 

UNCURRENT  NOTES: 

Issue  of,  prohibited 616 

UNITED  STATES  DISBURSING  OFFICERS: 

Fraudulent  notes  to  be  marked  by 603 

Penalty  for  unauthorized  deposit  of  public  money 658 

Withdrawal    of    public    money 657 

UNITED  STATES  NOTES:  : 

Circulation  of  bank  to  be  redeemed  in 602 

Fraudulent,  to  be  marked 603 

Issue  of  notes  certificate  on  deposit  of 610 

Obligations  of  the  United  States  defined 638 

Penalty  for  dealing  in  counterfeit 640 

Penalty  for  illegal  use  or  possession  of  material  for  jii'inting 638 

Penalty  for  passing  counterfeit 639 

Penalty  for  pledging,  etc 636 

Penalty  for  taking  or  having  unauthorized  impression  of  tools  639,  640 

Redemption   of   certificates   issued   for 610 

Subject  to  taxation  by  States 607 

USURY: 

Interest,   when   not 613 

Penalty  for 614 

V. 
VACANCIES  IN  OFFICE : 

W'here  law  does  not  provide  otherwise,  implication  is  that  he  may 

hold  after  the  term 92 

Where  vacancies  occur,  must  be  filled  as  provided  by  tlie  statute.  .      93 
Absence  of  charter,  statute,  or  a  by-law,  provisions  may  be  filled 

by  the  stockholders 93 

National  bank,  board  of  directors,  how  filled 587 

VICE-PRESIDENT: 

Of  national  bank  circulation,  may  sign 396,  397 

Election  or  appointment  of,  in  national  bank 580 

Proxy,  not  to  act  as 586 

VIOLATION  OF  NATIONAL  BANK  ACT: 

Forfeiture  of  charter  for 630 

VISITORIAL  POWERS : 

Limitation  of  national  banking  associaton  subject  to 620 

VOTING: 

Elections  and  meetings,  national  bank 681 

Qualifications  and  rights  of  shareholders  in  national  bank..    586,  681 
( See  Officer.s  ;    Directors.  ) 


800  IXDEX. 

w. 

WITHDRAWAL,  NATIONAL  BANKS:  page. 

Bonds,  general  provisions  respecting 594 

Circulation,   provisions   for 600 

Deposit  and,  of  pviblic  moneys 657,  658 

Dissenting  shareholders 623 

Expired  associations,  bonds  of 025 

Illegal   preference,   of   creditors 635 

Lquidation  associations,  bonds  of 624 

Reduction  of  capital 590 

L'nearned  dividends 615 


J 


0     000  364  721 


^ 


